PNC Financial's 5 Favorite High-Yield Stocks

Includes: ABT, GE, JNJ, MRK, PFE
by: Rash Menaria

PNC Financial Services Group, Inc. (NYSE:PNC) is a diversified financial services company based in the United States. PNC manages over $250 billion in assets, of which approximately $38 billion is deployed in equities.

I discussed PNC's Top Buys and Top Sells in my previous articles. In addition, for investors seeking yield it is also interesting to have a look at PNC's top dividend holdings. The following is a list of PNC's top seven holdings with good dividend yields, as released in their most recent 13F filing with the SEC.



Shares Held as on 12/31/2011


Abbott Laboratories




General Electric Co.




Johnson & Johnson




Merck & Co.Inc.




Pfizer Inc.




I would recommend going long on Abbott, Johnson & Johnson, Pfizer and Merck among above stocks. However, I would like to avoid General Electric.

Abbott Laboratories is a global diversified pharmaceutical and healthcare product company. It engages in the discovery, development, manufacture and sale of healthcare products worldwide. The company's drug portfolio includes Humira, Norvir, Depakote and Synthroid. Abbott is also a leading player in nutritional supplements and diagnostic systems.

I like Abbott because of the announced spin-off of its pharmaceutical business. This move is likely to create more value for the shareholders through focused execution and better use of capital. The spin-off is expected to occur by the end of this year.

From the fundamental perspective also, Abbott's business is seeing good trends. Abbott reported strong 4Q 2011 results ahead of street's estimates and provided a healthy 2012 guidance driven by organic growth and higher gross margins. Going forward, Abbott is expected to continue delivering solid earnings results, as Humira is likely to continue to post strong sales with market gains in underpenetrated markets and Abbott's recent global expansion in emerging markets. Abbott management also noted that they will resume share buyback in 2012, hinting that its stock is currently undervalued.

Johnson & Johnson engages in the research and development, manufacture and sale of various healthcare products worldwide. It operates in three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics.

J&J's recent earnings results and guidance for 2012 show signs of improving fundamentals across its businesses. On the pharmaceutical front, in 2011, J&J received key product approvals for several of its drugs including Incivo, Zytiga, Edurant and Xarelto. These launches are expected to drive solid growth and improve margins through 2012. There is also sequential improvement on McNeil's situation as J&J works through its Consent Decree with FDA. Looking at its MD&D business, volume trends seem to be improving as physician office visits are stabilizing.

Despite FX pressures and tough environment, J&J has posted good top line growth in Q4 and is expected to continue to outperform its peers driven by a robust pipeline of drugs in near term. I recommend a buy.

Pfizer is a research-based, global biopharmaceutical company. Pfizer's stock price has seen a good 20% appreciation in last 6 months, and I expect it to continue its upward trend going forward. I am bullish on Pfizer because of management's commitment to enhancing shareholder value through dividend and buybacks, and the 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.

I also like Merck given the defensive nature of its business and its low valuations. The stock has outperformed S&P 500 (NYSEARCA:SPY) in the last 6 months gaining over 22%. I believe this outperformance will continue going forward as investors realize the significant discount company is trading at versus other large cap pharma names.

One stock in the above list where I am not too positive is General Electric. GE is likely to see headwinds from weak pricing, a difficult European environment and decelerating growth in emerging markets. Hence I recommend a sell on the stock.

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