Top Stock Picks For 2015, From BofA Head Of Equity Strategy

Top Stock Picks For 2015, From BofA Head Of Equity Strategy
BofA Merrill Lynch's Subramanian: 2015 stock picks

by Adam Shell

Held back by a market that's no longer cheap, a likely rise in volatility and less stimulus from the Federal Reserve, the U.S. stock market will rise in 2015 but at a slower pace than recent years, predicts Savita Subramanian, head of U.S. equity and quantitative strategy at BofA Merrill Lynch.

Subramanian's year-end 2015 price target for the broad Standard & Poor's 500 stock index (SPX) (SPY) is 2200, roughly 6% higher from the recent close.  The market is currently on pace for its third straight year of double-digit gains for the first time since the 1990s.

Investors, she says, should expect a bumpier ride next year as the Fed gets set to start hiking short-term interest rates for the first time since 2006 - and the bull market nears its 6th birthday, which is more than a year longer than the average bull's lifespan.

"We found that bull markets don't necessarily die of old age, they die of euphoria - everybody 'going all-in' to equities - and I just don't think that we are there yet," she says.

Top Stock Picks:

Exxon Mobil (XOM). It's not her favorite sector, but the oil giant is a "contrarian" pick, given its 3% dividend yield and its reputation for sailing through oil price volatility without major tumult. Another plus: The mutual fund community is 70% "underweight" Exxon, which reduces potential "selling pressure."

General Motors (GM). Mega-cap automaker is inexpensive, pays out a sizable dividend and will benefit from new product launches and lower gas prices, which will spur consumers to trade up to larger SUVs and trucks.

Wal-Mart Stores (WMT). High-quality, big-cap retail stock has big exposure to low-income consumers, who benefit most from lower oil and gasoline prices as it frees up more disposable income. The low-price retailer is a good "defensive" stock in the consumer discretionary sector.

General Electric (GE). Founded more than 100 years ago, GE is built to last. It is a cheap stock that pays out a 3%-plus annual dividend. GE, part of the S&P 500 industrial sector, is likely to deliver double-digit earnings growth through 2016. Cost savings from restructuring will help.

Intel (INTC). This "old tech" stalwart has plenty of net free cash. Returning cash to shareholders is part of the chipmaker's corporate ethos. It will benefit from a stabilizing PC market and long-term growth in servers. Intel is well-positioned to take advantage of trends in Big Data/Cloud computing.

Favorite Sector:

Technology (XLK). "Old-tech names - your Microsofts or Apples, your IBMs and Intels ... are undervalued and have finally realized that they can return cash to shareholders without the penalty of being (perceived as anti-growth)," she says. "These stocks are turning into very interesting cash-distribution vehicles, which I think matters in a low-yield world."

Investment Themes Worth Betting On:

Large-cap stocks (DIA) over small-company stocks (IWM). As the Fed dials back its easy-money policies, small-caps will lose their "tailwind of cheap capital," which paves the way for large stocks to retain market leadership for a second straight year.

Delight in dividend growers. In a world of low interest rates, buying stocks that increase their dividends each year are better bets than those that simply sport a fat yield. "The world is looking for income that is likely to grow rather than shrink," she says.

Biggest Risk:

"If corporations go back into bunker mode and stop spending," that would hurt the economy, she warns.

Courtesy of usatoday.com