An equities team at Bank of America Merrill Lynch has issued their recommendations for 10 stocks to buy for 2013- one for each sector of the economy, based on how much upside the team (which is led by Savita Subramanian) sees for the stock in the coming year. It’s not a good idea to follow any investor’s recommendations blindly, let alone those from a bank, but we think that it’s worth it to go through these lists to see if any particularly good ideas might stand out. Courtesy of Business Insider (read their article here), here are five of Bank of America Merrill Lynch’s stock picks for 2013:
The group’s top consumer discretionary pick was Ford Motor Company (NYSE:F), with a price target of $20. Value investors have given General Motors Company (NYSE:GM) more attention, but the entire ecosystem surrounding the auto industry is seeing low multiples as the market worries about low demand particularly in Europe. Ford’s revenue and earnings were about flat last quarter compared to the third quarter of 2011, and its forward P/E of 8 is just a bit higher than GM’s multiple of 7. Billionaire David Tepper’s Appaloosa Management also owns GM and some other auto related stocks, but increased its stake in Ford by 52% during the third quarter (check out Tepper’s stock picks). We think that it’s probably better to buy Ford than GM, but we’d want to at least consider Toyota and Honda first.
Wal-Mart Stores, Inc. (NYSE:WMT), at a price target of $85, was Bank of America Merrill Lynch’s favorite consumer staples stock. At 14 times trailing earnings- and with revenue and earnings both up modestly in its most recent quarter compared to the same period in the previous year, suggesting that the big box retailer is easily surviving competition from Amazon.com, Inc. (NASDAQ:AMZN) and dollar stores- the market leader in retailer is indeed fairly cheap. Warren Buffett’s Berkshire Hathaway (find Warren Buffett’s favorite stocks) had Wal-Mart as one of its top ten stocks at the end of September. Dollar stores offer higher growth at a small premium, however, and it might be worth it to look at those stocks to see if they can continue their growth rates.
Bank of America is one of the best performing bank stocks this year, but its financial pick for 2013 is rival Citigroup Inc. (NYSE:C) at a price target of $45. Citigroup trades at a considerable discount to book value, at a P/B ratio of 0.6. While there’s good reason to be skeptical about the value of Citi’s assets, particularly as Europe looks weak, that does give the stock quite a bit of upside. Citi made our list of the most popular stocks among hedge funds for the third quarter (see the full rankings) as 94 funds and other notable investors owned the stock. However, we think that we’d prefer JPMorgan Chase & Co. (NYSE:JPM) at a small premium.
Representing the technology sector was one of hedge funds’ favorite tech stocks last quarter: networking company Cisco Systems, Inc. (NASDAQ:CSCO). The equities team placed a price target of $24 on the stock. Cisco’s revenue was up 6% last quarter versus a year earlier, and net income climbed 18%. Despite this decent growth performance and a dividend yield close to 3%, the stock trades at 13 times trailing earnings and only 9 times consensus for 2013. We’d lean towards agreeing with the analysts here; that seems like a good price.
The team’s energy pick isn’t as well known as the other stocks on this list: $18 billion market cap refining and marketing company Valero Energy Corporation (NYSE:VLO) has a price target of $46. Valero produces gasoline, jet fuel, other petroleum products, and ethanol. The stock is up 61% in the last year, and even with earnings actually not looking good last quarter that places it at a trailing P/E of 16. That’s likely a bit high for consideration as a pure value stock, and we’d want to see better performance on the bottom line before buying. Billionaire Stanley Druckenmiller initiated a position of about 860,000 shares in Valero last quarter (see more stocks Druckenmiller was buying).
