Focus on Earnings and Dividends
High unemployment, a shaky economy with talk of a “double-dip” recession, and more debt crises in Europe drove stocks lower in late November. But third-quarter earnings accelerated, and gross domestic product increased at an annual rate of 2%.
Looking ahead, the first indications of holiday season sales look very positive, and consumer confidence is on the rise. This could help stabilize the stock market.
But volatility remains high, so this month investors should concentrate on stocks that have shown strength in earnings and price with an emphasis on dividend increases.
Here are your top stocks to buy for December:
Top Stock to Buy #1 — Chevron Corp. (CVX)
Major international energy company Chevron Corp. (NYSE:CVX) primarily engages in the exploration, refining, transportation and storage of crude oil and natural gas. The stock ran to a high at over $110 before triple-topping and falling to its major support zone at $87.
S&P has the stock rated as a “five-star strong buy” with a target of $132. Q3 earnings were $3.92 versus $1.87, which was significantly higher than analysts’ consensus. The consensus estimated earnings for 2011 are $14.20 versus $9.48 for 2010 and $13.65 in 2012. Credit Suisse’s target price for CVX is $130.
Technically if a triple-bottom at $87 holds, CVX could easily trade north of $120. The annual dividend is $3.24, providing a yield of 3.5%.
See chart key
Top Stock to Buy #2 –EnterpriseProducts Partners (EPD)
Integrated natural gas and natural gas liquid services provider Enterprise Products Partners (NYSE:EPD) is experiencing demand for pipeline services. The company is well-positioned to benefit from its strong asset base and geographical position, and is expanding its infrastructure to capitalize on the natural gas drilling in the Eagle Ford and Haynesville shales and thePermianBasin, which are all major sources of natural gas. The company has no general partners, thus avoiding incentive distribution rights.
EPD has provided shareholders with a 9.5% total annualized return over the past 10 years, and has raised its dividend for 28 consecutive quarters. S&P has a “five-star strong buy” on the stock with a price target of $54. Its current dividend yield is 5.6%.
Technically the stock broke from a wide support zone in October, but pulled back to support at just under $44. The fundamental analysts’ target for EPD is $54, but a break above its recent high could yield a faster trading target of $50.
See chart key
Top Stock to Buy #3 — Target (TGT)
Retail giant Target (NYSE:TGT), which operates about 1,500 stores in theUnited States, is a victim of a slow economic recovery, and its stock performance shows it. TGT hit a high of over $60 last December, but gapped lower and attempted to stabilize in January at its 200-day moving average.
However, same-store sales have shown significant improvement throughout 2011, and the stock has responded by forming a saucer bottom. Then, in October, its 50-day moving average crossed above the 200-day creating a “golden cross,” which is a very bullish development.
The MACD indicator is not very oversold, so the stock will most likely find solid support at the 200-day moving average just over $50. TGT has a dividend yield of 2.3%. The near-term technical trading target is $56.
See chart key
Top Stock to Buy #4 — Merck & Company (MRK)
Merck & Company (NYSE:MRK) is one of the world’s largest drug makers. With a consensus earnings estimate of $3.77 for this year and $4 in 2012, the stock is selling at just over 8 times earnings. Analysts note that the company has a number of promising drugs in its pipeline that could have an impact on earnings next year.
Credit Suisse has a target price of $44 on MRK. Additionally, the company has a history of increasing its dividend, which is now at an annual yield of 4.6%.
Technically the stock is oversold following a recent sell-off to $33. It is currently resting on support and should rally to $37 within 60 days.
See chart key
Top Stock to Buy #5 — Intel (INTC)
Intel (NASDAQ:INTC) is the world’s largest semiconductor chip maker, but for two years the stock has traded in a flat band from about $20 to $24. That may be coming to an end since the introduction of Ultrabooks and Windows 8 provides Intel with a new growth opportunity, according to Credit Suisse analysts, and the company should also benefit from “Big Data/Fast Data trends.”
Earnings are estimated at $2.45 this year and $2.65 in 2012. At under 10 times earnings, this widely recognized brand is targeted by analysts at $32-plus.
Technically the stock broke from the two-year consolidation in October, but quickly pulled back giving investors an opportunity to buy at $22 with a price objective of $35. Intel has a dividend yield of 3.7% and a history of dividend increases.
See chart key
Top Stock to Buy #6 — Wells Fargo & Co. (WFC)
Many analysts consider Wells Fargo & Co. (NYSE:WFC) to be the highest quality large bank in theUnited States. Q3 results hit record highs for net income and EPS, but trading resulted in lower net interest margin. S&P estimates earnings for 2011 at $2.83 and $2.97 in 2012. At just 11 times earnings, the stock should sell at $32 since it has commanded a higher multiple in the past.
Technically the stock bottomed between $22 and $23, and that should be a solid support zone. The 12-month target for WFC is $33. The stock has a dividend yield of 2%.