3 defensive stock picks for 2013
Here are 3 of Bank of America's recommended plays for next year.
By Nelson Hem
Bank of America Merrill Lynch offered 10 defensive stock picks for 2013, according to 24/7 Wall St. Two utilities and a telecom made the list: American Electric Power (AEP), American Water Works (AWK) and CenturyLink (CTL).
Here is a quick look at how these three picks have performed recently and what analysts expect from them.
American Electric Power
This Columbus, Ohio utility company has a market capitalization near $21 billion and a dividend yield of about 4.3%. The long-term earnings per share growth forecast of more than 3% is similar to that of competitor Duke Energy (DUK), and its return-on-equity of almost 10% is greater. The price-to-earnings ratio is less than the industry average, but the operating margin is greater than the industry average. Short interest is about 1% of the float, the lowest it has been since April.
Of the 22 analysts surveyed by Thomson/First Call who follow the stock, 13 recommend buying shares, six of them rating it at "strong buy." The mean price target, or where analysts expect the stock to go, is less than 6% higher than the current share price, and would be a little higher than the 52-week high from last October.
Shares pulled back more than 6% following Superstorm Sandy but have started to recover. Despite that drop, the stock has outperformed competitors CenterPoint Energy (CNP) and Duke Energy, as well as the Dow Jones Industrial Average, over the past six months.
American Water Works
This New Jersey company serves customers in the United States and Canada. It has a market cap of more than $6.5 billion and a dividend yield near 2.6%. The long-term earnings per share growth forecast is about 10%, though analysts have underestimated quarterly earnings per share recently. The price-to-earnings ratio is less than the industry average. All but four of the 17 analysts surveyed recommend buying shares, but none recommend selling. Their mean price target represents about 9% potential upside, which would be a new multi-year high.
Shares have traded mostly between $36 and $38 since August, but are up about 20% year-to-date. The stock has underperformed competitor American States Water (AWR) over the past six months, but it has outperformed the S&P 500.
This integrated telecommunications company is headquartered in Monroe, Louisiana, and sports a market cap of more than $23.5 billion and a dividend yield near 7.5%. The price-to-earnings ratio is lower than that of larger competitors AT&T (T) and Verizon Communications (VZ), but the long-term earnings per share growth forecast is less than 2%. Shares sold short represent about 4% of the float, though that is the lowest number since May.
All but six of the 22 analysts surveyed recommend buying shares; seven of them rate it at "strong buy." They believe the stock has some room to run as their mean price target is more than 13% higher than the current share price, or a little more than the 52-week high from back in October.
The share price has declined more than 9% over the past 90 days but is still more than 6% higher than a year ago. Over the past six months, the stock has outperformed AT&T but underperformed Verizon and the broader markets.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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