Despite the upcoming patent losses, Pfizer Inc. (NYSE:PFE) still generates cash flow to pay a respectable 3.5% dividend yield. On January 30, Argus raised its price target on Pfizer to $30 from a previous $28 based on the company’s strong Q4 report and upcoming pipeline. Pfizer is scheduled to launch new drugs within heart disease, immunology, and oncology in the near future.
Investors seem to be buying the Pfizer’s long-term growth story, as shares are trading at 5-year highs. I recommend that readers follow Bank of America’s advice and buy shares of Pfizer. The company’s fiscal year ends on December 31.
Wal-Mart Stores, Inc. (NYSE:WMT) – #8
During her presentation at the CFA Society, Bartels referenced Wal-Mart as a great example of leadership within the mega caps. After trading in a range between $50 and $60 for the majority of the last decade, Wal-Mart broke out in the second half of 2012 and reached an all-time high of $77.60. Bartels believes mega caps are a catch-up trade for 2013 and that Wal-Mart can see further upside.
On February 21, Wal-Mart Stores, Inc (NYSE:WMT) reported fourth quarter 2012 results before the market open. Earnings per share came in at $1.67 vs. $1.57 consensus on top of revenue of $127.92 billion, slightly lower than the $128.77 billion expected.
Management announced an 18% increase in the annual dividend to $1.88 per share. In addition to the dividend increase, Wal-Mart provided a fiscal year 2014 guidance range of $5.20-$5.40 giving the stock a 13x forward P/E multiple. Analysts are currently modeling $5.37 per share, at the upper end of management’s guidance.
Following the earnings announcement, an internal e-mail obtained by Bloomberg News indicates that February sales are off to a slow start. Jerry Murray, vice president of finance and logistics, wrote in an e-mail “In case you haven’t seen a sales report these days, February (month-to-date) sales are a total disaster. The worst start to a month I have seen in my (about) 7 years with the company.”
Although the leaked e-mail sounds like it’s straight from a competitor’s playbook, Wal-Mart confirmed on the fourth quarter earnings call that its customers were adjusting to a reduced paycheck (courtesy of higher payroll tax) and increased gas prices in the New Year. Management also lowered FY14 sales guidance to 5%-6% comparable sales growth from a previous estimate of 5%-7% same-store sales growth.
Following the quarter, analysts at Cowen and Company, J.P. Morgan, and William Blair have all expressed caution on Wal-Mart. Specifically, William Blair communicated a “sell the news” message to its clients, indicating the firm didn’t understand why Wal-Mart was trading higher and not lower following the release, given the lower-than-expected sales during Q4 and reduced outlook.
Among BAML’s Top 10 Picks for 2013, Wal-Mart is my least favorite due to the recent same-store sales weakness. Although I believe downside is limited due to the 2.6% dividend yield, the stock will need time to consolidate the recent gains.
Wal-Mart’s fiscal year ends on January 31.
Further Insights on Bank of America Merrill Lynch
If you are a believer in Bank of America’s thesis that mega caps are under-owned, Eli Lilly, Pfizer, and Wal-Mart are all candidates for outperformance over the next several years.
Furthermore, mega cap valuations are supported by strong dividend yields. The average yield for Bank of America’s Top 10 list is 3.8%, which significantly beats the 10-year U.S. Treasury bond or traditional savings account yield. Check back at johnmacris.com for Parts Two and Three of Bank of America’s Top 10 Picks for 2013 very soon.
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The article Bank of America Merrill Lynch’s Top 10 Picks for 2013, Part One originally appeared on Fool.com and is written by John Macris.
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