By Angus Robertson
“The Dogs of the Dow,” the 10 stocks in the Dow Jones Index with the highest dividend yield, usually perform better than the rest of the Dow components, so it is worth taking a look at the candidates for Dogs of the Dow 2011. A high dividend yield suggests the stock may be undervalued, providing an opportunity to buy a solid company at a good price. Using a search of Alacra Pulse we have compiled the latest analyst comments on the ten companies likely to make up the 2011 list.
Despite concerns over the expected loss of its iPhone exclusivity, most analysts tracked by Alacra Pulse are positive on AT&T.
The median price based on the the thirteen most recent targets featured in a November Alacra Pulse Prognosis is $31. Of these 13 analysts, seven have a positive rating and six are neutral. None are negative. Todd Rosenbluth, an analyst with Standard & Poor’s, this week reiterated his “strong buy” rating and $33 price target on AT&T.
Analysts are mostly neutral on Verizon, even with an expected boost from the iPhone. Of 13 analysts featured in our November Prognosis, 4 have a positive rating, 8 are neutral and one is negative. The median target price is $34.
AT&T opened today at $29.01, Verizon at $34.97.
Credit Suisse last week raised Chevron’s price target to $103 from $96. Barclays Capital cut its target from to $107 from $110 and maintained an Overweight rating. “While the higher capex budget is a slight negative, in our view, it is not as negative as some were anticipating in the market … Lower 2011 EPS to $10.40 from $10.50 per share.”
Chevron opened today at $89.62.
Du Pont received a number of price target increases in December, including JPMorgan (Buy) to $53 from $51, Susquehanna (Positive) and Soleil (Buy), both to $60 from $55, while Citigroup upgraded the chemicals company to Buy from Hold with a target of $59. Goldman Sachs upgraded DuPont from to Buy from Hold with a $56 target as emerging market growth is expected to boost earnings over the coming quarters.
Du Pont opened at $49.94.
Deutsche Bank added Intel to its Short Term Buy list in early December, with a $26 target, while Auriga analysts reiterated a Buy rating and raised its target to $26 from $21. But Goldman Sachs recommends avoiding Intel. It has a Neutral rating on the stock and a $20 price target. “While the Street has been getting more positive on Intel with several recent upgrades, we see both 2011 and longer-term challenges due to the rise of tablets. Our analysis and industry discussions suggest that Intel’s 2011 tablet share will be modest.
Standpoint Research agrees, downgrading Intel to Hold from Buy: ”I can still see the shares grinding higher to $24-$28 in 2011-2012, but it is unlikely we will see additional out-performance versus the S&P from this point forward and that is our main concern with any mega-cap, low-beta name in a rising market.”
Intel opened at $21.01.
Wells Fargo earlier this month downgraded Johnson & Johnson from Outperform to Market Perform. Valuation Range cut to $64-$65 from $68-$69: “We are lowering our rating on JNJ based on risk associated with its McNeil OTC manufacturing situation.” UBS maintained its Buy rating and $69 and said that despite how early it is, data is supportive of significant market opportunity.
Johnson & Johnson opened at $62.33.
Deutsche Bank in early December maintained its Hold rating on Kraft, but cut its price target from to $30 from $31: “Despite a solid dividend yield, and LT potential portfolio improvement via Cadbury (snacks/confection, emerging markets), we retain our Hold opinion. Kraft’s US coffee business is looking problematic to us. Meanwhile leverage, modest FCF, competitive developed markets and integration risk lead us to see valuation as reasonable.”
Barclays Capital in early December reiterated an Overweight rating on Kraft with a $35 price target. Citigroup raised its price target to $40 from $36, with a Buy rating following Kraft’s November earnings results.
Kraft Foods opened at $31.78.
Goldman Sachs resumed coverage on McDonald’s last week with a Neutral rating and $88 price target. The firm said two things hold McDonald’s back in 2011: “(1) We do not believe this is the time in the cycle to overweight MCD, and (2) Margin expansion may be muted by the impact of rising commodities.”
November same-store sales fell shy of expectations, sending its stock lower and presenting a buying opportunity, Sterne Agee analysts said. “We continue to believe that (McDonald’s) is the best-positioned player to gain market share given significant marketing power, an entrenched value perception, new menu innovation and upgraded facilities,” Sterne Agee said in reiterating a Buy rating and $87 price target.
Citigroup reiterated a Hold rating on MCD in October, as “a lot of the positive momentum is already priced into the shares here … so while we’re raising estimates, and lifting our target (+9% to $82), we’re keeping McDonald’s Hold-rated.” But UBS Analyst David Palmer raised his target price$86 from $83, saying McDonald’s does well in times of food price inflation.
McDonald’s senior unsecured credit rating was boosted earlier this month by Moody’s, from A3 to A2. “The upgrade reflects McDonald’s continued strong operating performance achieved through consistent new product innovation, ongoing cost saving initiatives, regular re imaging of existing restaurants and steady new restaurant growth and effective advertising,” Moody’s senior analyst Bill Fahy told MarketWatch.
McDonald’s opened today at $77.04.
Of 13 analysts tracked by Alacra Pulse, 11 have a positive rating in Pfizer and two are neutral. The median price target based on a Dec 9 Alacra Pulse Prognosis is $21, ranging from a high of $30 by Hilliard Lyons’ Stephen O’Neil to a low of $17 from Citigroup’s Jack Boris.
In late November, Credit Agricole initiated coverage of Pfizer with a Buy rating and $25 price target and Merck with a Buy rating and $47 price target.
Pfizer opened at $17.37, Merck at $36.23.