BANK OF AMERICA: Here's a list of our 11 favourite stocks for next year

Scott Olson/Getty ImagesTraders signal offers in the Standard & Poor’s 500 stock index futures pit at the CME Group following the Federal Reserve meeting September 21, 2011 in Chicago, Illinois.
  • Investors should always diversify their portfolio to reduce risk.
  • With limited cash, one can try to bet on the bellwether stocks in each industry.
  • Bank of America Merrill Lynch has published a list of its 11 favourite stocks for next year – one S&P 500 stock from each of the 11 Global Industry Classification Standard sectors.
  • The firm’s 2018 list has generated a 3.2% average return rate, outperforming the benchmark S&P 500.

Investing is all about avoiding putting all your eggs in one basket.

Usually, the more diversified your portfolio is, the less risk you will bear. However, unless you are a big fund manager, you probably won’t buy more than a dozen stocks at a time. So, finding out the bellwether stocks in each industry is a good bet.

Bank of America Merrill Lynch is here to help. At the end of each year, BAML publishes a list of its 11 favourite stocks for next year – one in each of the 11 Global Industry Classification Standard sectors.

To be included in the list, a company must have a “buy” rating at the firm, and have exceptional fundamentals.

BAML says the list has proven to outperform the benchmark. Last year’s list has generated a 3.2% average return rate since it was published – versus the S&P 500’s 1.6% return, the bank says.

Below are the 11 stocks that BAML says have the biggest growth potential in their sector next year:


Walt Disney

MI

Ticker:
DIS

Sector: Communication Services

BAML comments: “One of highest quality S&P 500 stocks. Strong free cash flow, medium equity duration, low leverage. Big catalysts in 2019 (Disney Streaming Services, etc.) Underweight by large-cap active funds.”

Source: BAML


General Motors

MI

Ticker:
GM

Sector: Consumer Discretionary

BAML comments: “Strong free cash flow, inexpensive valuations (6x fwd. P/E), underweight by large-cap active funds Positive betas to both real and nominal rates. Both near-term and longer-term potential catalysts in the pipeline (trade war resolution, autonomous driving, etc.)”

Source: BAML


Molson Coors Brewing

MI

Ticker:
TAP

Sector: Consumer Staples

BAML comments: “High quality, inex pensive (13x fwd. P/E), attractive FCF yield, above-market dividend yield Historically does well in periods of rising volatility. Underweight by large-cap active funds.”

Source: BAML


Exxon Mobil

MI

Ticker:
XOM

Sector: Energy

BAML comments: “More defensive Energy stock – low sensitivity to oil. High quality, inexpensive, healthy free cash flow yield, attractive/growing dividend, low leverage Positively correlated to VIX historically, underweight by large-cap active funds.”

Source: BAML


Morgan Stanley

MI

Ticker:
MS

Sector: Financials

BAML comments: “High quality, inexpensive (8x fwd. P/E), dividend grower Potential beneficiary of less onerous regulatory backdrop Strong recent EPS revisions, BofAML EPS above consensus.”

Source: BAML


CVS Health

MI

Ticker:
CVS

Sector: Health Care

BAML comments: “High quality, low leverage, inexpensive (10x fwd. P/E), above-market dividend yield Potential synergies from acquisition of Aetna. Historically fares well in rising volatility environments.”

Source: BAML


Raytheon

MI

Ticker:
RTN

Sector: Industrials

BAML comments: “Defence stocks should benefit from higher defence budget. Hedge against geopolitical risks. Inex pensive (14x fwd. P/E), high quality, above-market FCF yield, low leverage. Historically fares well in periods of rising volatility. Underweight by large-cap active funds.”

Source: BAML


Microsoft

MI

Ticker:
MSFT

Sector: Information Technology

BAML comments: “High quality, dividend grower/medium equity duration, healthy balance sheet (net cash) Investing in future growth (R&D spenders typically rewarded). BofAML EPS above consensus.”

Source: BAML


International Paper

MI

Ticker:
IP

Sector: Materials

BAML comments: “Inexpensive (8x fwd. P/E), high quality, attractive dividend yield BofAML EPS above consensus. Underweight by large-cap active funds.”

Source: BAML


Simon Property Group

MI

Ticker:
SPG

Sector: Real Estate

BAML comments: “High quality, attractive/growing dividend yield. BofAML EPS above consensus; high-quality portfolio based on Real Estate Investment Trusts(REIT) team’s analysis of mall REIT portfolios. Underweight by large-cap active funds.”

Source: BAML


Public Service Enterprise Group

MI

Ticker:
PEG

Sector: Utilities

BAML comments: “High quality, attractive/growing dividend yield Historically fares well in rising volatility environments. Underweight by large-cap active fund.”

Source: BAML


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