BlackRock's High Yield Stocks: 3 To Buy, 1 To Avoid

Includes: CVX, GE, JNJ, JPM, PFE, PG, S, T, VZ, XOM
by: Rash Menaria

The following is a list of the top high yield companies which BlackRock Investment Management LLC is holding according to its most recent 13F filing with SEC.



Shares Held - 09/30/2011

Dividend Yield

Chevron Corp.




Johnson & Johnson




AT&T Inc.




General Electric Co.




Procter & Gamble Co.




Pfizer Inc.




JP Morgan Chase & Co.




I like Pfizer, JP Morgan and Chevron among above stocks. I am bullish on Pfizer because of management’s commitment to enhance shareholder value through dividend and buybacks, and company’s improving product pipeline. Pfizer increased its quarterly dividend by 10% to $0.22 from $0.20 in Q4 and authorized an additional $10 billion share repurchase program with $5 billion in repo expected for 2012. Pfizer is likely to generate ~$20B in free cash flow in 2012, so even with the dividend of ~$6.5B and share buyback of $5B there is still plenty of room for inorganic growth through M&A. In addition, Pfizer entering an interesting new product launch cycle with four $1+ bn opportunities including Xalkori, Eliquis, tofacitinib, and Prevnar 13 adult which could provide organic growth catalysts for the company.

JPMorgan Chase is a stable bank with strong capital position, business mix diversity and good dividend yield. Since 2004 JPM has strengthened its risk controls and business rationale. This has enabled it to post solid growth and excellent relative navigation of credit crunch. Going forward, the company continues to invest in growing its global franchise in spite of regulatory challenges. In addition to its global growth, there is a good scope for it to gain share from competitors with relatively weaker balance sheet.

I also like Chevron Corp. The stock has underperformed its peer Exxon Mobil (XOM) after the recent news on Chevron’s Brazilian oil spill. The stock is up 3% since November 10 when the news was first out. This compared to a 10% gain in Exxon's stock price during the same period. Given that the spill is estimated at 2,400 Bbls (well below 0.1% of Macondo), this underperformance clearly is an overreaction by the investors. I expect Chevron’s stock performance to eventually catch up with Exxon causing the upside.

One stock in the above list where I am not too positive is AT&T. Although its break-up with T-Mobile came somewhat along expected lines, the failure of this deal is a net negative for AT&T as it will now have to look elsewhere for the spectrum. Further, fall off of this deal is not good from a competitive point of view for AT&T. AT&T would have been a more powerful competitor with the merger. Without the deal, both Verizon (VZ) and Sprint (S) should be better able to compete.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.