The best stocks to buy by sector.
In an uncertain and volatile stock market, one of the best ways for long-term investors to get defensive is by taking advantage of the power of diversification. The Bank of America research team recently sorted through each stock market sector and selected their best stock idea for 2019 from each of 11 market sectors. For investors looking to diversify their holdings in 2019, a basket of these 11 stocks could be a good place to start to make a profit. Here’s a look at Bank of America’s single top stock pick in each sector.
Communication services: Walt Disney Co. (ticker: DIS)
This year may be the biggest year for Disney in decades. In addition to closing its massive buyout of Twenty-First Century Fox (FOXA), Disney is planning on launching its highly anticipated Disney+ streaming service in the second half of 2019. Disney+ is the company’s answer to Netflix (NFLX) and represents a fundamental shift in the company’s long-term entertainment business model. Analyst Jessica Reif says Disney is the best-positioned legacy entertainment company to monetize the streaming video model. Bank of America has a “buy” rating and $144 price target for DIS stock.
Consumer discretionary: General Motors Co. (GM)
Investing in General Motors may seem odd given new competition, the ongoing trade war and a potential cyclical decline in global auto sales. However, analyst John Murphy says GM’s recent restructuring announcement, which includes closing plants and cutting its workforce, will help create tremendous long-term value for investors as the company modernizes its business. In addition, Murphy says the subsidy cuts President Donald Trump proposed as retaliation for GM’s plant closures are not a material financial threat to the company. Bank of America has a “buy” rating and $60 price target for GM stock.
Consumer staples: Molson Coors Brewing Co. (TAP)
Analyst Bryan Spillane says expectations for volume growth at Molson Coors are extremely low at the moment. However, with TAP stock priced at more than a 60 percent earnings multiple discount to competitor Constellation Brands (STZ), Spillane says secular growth pressures are already priced into TAP shares. TAP stock also trades at about an 18 percent discount to its consumer staples peer group. Spillane says the company has significant cost-cutting opportunities, and Molson Coors generates impressive cash flow. Bank of America has a “buy” rating and $80 price target for TAP stock.
Energy: Exxon Mobil Corp. (XOM)
Few stocks have had a more disappointing decade during one of the strongest bull markets in history than Exxon Mobil. However, analyst Doug Leggate says Exxon’s impressive third-quarter earnings report in November was a significant first step in rebuilding the company’s credibility and regaining confidence among long-term investors. Leggate says the third quarter was Exxon’s best quarter since oil prices were above $100 a barrel and the long-term investment thesis for this large-cap stock rests squarely on its impressive free cash flow growth. Bank of America has a “buy” rating and $110 price target for XOM stock.
Financials: Morgan Stanley (MS)
Bank stock investors were majorly disappointed in 2018 as bank stocks slipped despite corporate tax cuts, rising interest rates and a favorable regulatory climate in Washington. Analyst Michael Carrier says Morgan Stanley is a best-in-class investment bank with a miniscule 7.7 forward earnings multiple, a rising 3 percent dividend yield and an increasing global investment banking market share. Deregulation has given Morgan Stanley’s trading business more wiggle room, and Carrier says Morgan Stanley will likely exceed consensus earnings expectations in 2019. Bank of America has a “buy” rating and $58 price target for MS stock.
Health care: CVS Health Corp. (CVS)
Like Disney, CVS Health Corp. is potentially undergoing a massive shift in its business model starting in 2019. CVS plans to leverage its $70 billion acquisition of Aetna (AET) by integrating Aetna’s client network and expanding its Minute Clinic offerings. Analyst Michael Cherny says CVS is a high-quality health care company with low balance sheet leverage, an attractive market valuation, and an above-average 3 percent dividend yield. He also says CVS has historically outperformed the market during periods of rising interest rates. Bank of America has a “buy” rating and $92 price target for CVS stock.
Industrials: Raytheon Co. (RTN)
Analyst Ronald Epstein recommends investing in the defense sector because it should get a shot in the arm from rising U.S. defense spending in 2019. He says Raytheon is both a compelling value and a potential hedge against unforeseen geopolitical risks as the global trade war drags on. In addition, Raytheon has an impressive free cash flow yield, a strong balance sheet and a stable, consistent business that should deliver profits. Epstein says RTN stock has also historically performed well during volatile periods in the market. Bank of America has a “buy” rating and $230 price target for RTN stock.
Information technology: Microsoft Corp. (MSFT)
After a decade of outperformance, FANG stocks finally hit a bit of a wall in 2018. Analyst Kash Rangan says Microsoft Corp. is well-positioned to take over as the tech sector’s market leader in 2019 as investors get more defensive. Rangan says this large-cap stock should deliver market-beating returns in 2019 and has a huge net cash position for financial flexibility. He says innovative companies like Microsoft that invest heavily in research and development typically outperform in the long term. Bank of America has a “buy” rating and $140 price target for MSFT stock.
Materials: International Paper Co. (IP)
Analyst George Staphos says the market has been blinded by a weak global paper growth outlook and is ignoring the potential value that International Paper provides at a forward earnings multiple of under 10. Staphos says consensus 2019 earnings estimates are too low, and IP stock has an attractive dividend that should be safe even during a recession. Finally, the stock is currently under-owned among institutional investors, suggesting there is the potential for heavy trading volume if market sentiment shifts. Bank of America has a “buy” rating and $58 price target for IP stock.
Real estate: Simon Property Group (SPG)
Analyst Jeffrey Spector says mall real estate investment trust Simon Property Group has a high-quality portfolio of properties, a 4.8 percent dividend yield, and an excellent opportunity to deliver market-beating earnings in 2019. He says a strong mall leasing environment has helped Simon limit the impact of the Sears Holding Corp. (SHLDQ) bankruptcy. Spector says Simon’s diversified portfolio of traditional shopping malls, outlet malls, regional shopping malls and lifestyle centers generates impressive cash flow and above-average growth for a REIT. Bank of America has a “buy” rating and $203 price target for SPG stock.
Utilities: Public Service Enterprise Group (PEG)
Analyst Julien Dumoulin-Smith says Public Service Enterprise Group is a leading regulated utility company with an impressive unregulated power business as well. Bank of America is projecting another 4.9 percent earnings per share growth in 2019 ramping to 8.7 percent year-over-year growth in 2020. Dumoulin-Smith says Public Service Enterprise will continue to invest in its 3.5 percent dividend, and an estimated rate base growth of around 9 percent is not fully reflected in the current share price. Bank of America has a “buy” rating and $58 price target for PEG stock.
Top stock picks to buy from each sector.
Here are Bank of America’s top stock picks for each sector:
— Communication services: Walt Disney Co. (ticker: DIS)
— Consumer discretionary: General Motors Co. (GM)
— Consumer staples: Molson Coors Brewing Co. (TAP)
— Energy: Exxon Mobil Corp. (XOM)
— Financials: Morgan Stanley (MS)
— Health care: CVS Health Corp. (CVS)
— Industrials: Raytheon Co. (RTN)
— Information technology: Microsoft Corp. (MSFT)
— Materials: International Paper Co. (IP)
— Real estate: Simon Property Group (SPG)
— Utilities: Public Service Enterprise Group (PEG)
More from U.S. News
7 Great Blogs for Investing Tips
8 Questions to Ask Your Financial Advisor During Volatile Markets
8 Blue-Chip Stocks to Weather a Bear Market
Top Stocks to Buy in 11 Different Sectors originally appeared on usnews.com
