SunTrust's Favorite High Yield Stocks: 3 To Buy, 2 To Avoid

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Includes: CVX, GE, MRK, PG, PM
by: Rash Menaria

The following is a list of top 5 high yield stocks Suntrust Banks Inc. is holding according to its most recent 13F filing.

Stock

Symbol

Shares Held as on 12/31/2011

Yield

Procter & Gamble Co

(NYSE:PG)

3,981,112

3.30%

Chevron Corp.

(NYSE:CVX)

2,262,332

3.00%

General Electric Co.

(NYSE:GE)

12,380,193

3.60%

Philip Morris International, Inc.

(NYSE:PM)

2,554,292

4.00%

Merck & Co. Inc.

(NYSE:MRK)

3,601,490

4.40%

From the above list, I believe Chevron (CVX), Merck (MRK) and Philip Morris (PM) are good long candidates.

Chevron's stock has underperformed its peers since the news on Chevron's Brazilian oil spill last year. 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 find Chevron's stock attractively valued, and expect it to outperform going forward.

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 out performance will continue going forward, as investors realize the significant discount the company is trading at versus other large cap pharma names.

In addition to Chevron and Merck, Philip Morris also looks good, with a 4% dividend yield and a stable business model with decent growth rates. However, I am not too bullish on the prospects of Proctor & Gamble and General Electric.

Procter and Gamble is a worldwide manufacturer and marketer of consumer and personal care products. Its well known brands include Pampers, Gillette, Pantene, Duracell, Clairol, Charmin and Bounty. It largely is a mature market player, with only 30% of revenues coming from emerging markets.

Recently, P&G reported disappointing FYQ2 results and lowered its 2012 guidance. With its business heavily levered towards developed markets, I expect P&G will continue to struggle with top-line growth as consumer spending weakens. P&G is losing its market share in mature markets, and it needs more innovation in its products to drive the growth. Even in emerging markets, I believe that margins will be under pressure, due to investment spending, along with Forex headwinds.

With the macro headwinds in the form of input costs and currency drags, and continued softening of developed market growth rates, I don't like risk-reward profile of P&G, and expect a near term downside.

I also don't like 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.