Merrill Lynch Makes Big Changes to Top-Performing Growth Portfolio

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With earnings reporting for the first quarter all but over, and the second quarter of 2018 well underway, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients. With the market showing volatility not seen in years, it makes sense to examine the lists and make some changes, as the rest of the year could have additional volatility as the political and geopolitical cycle could prove to be a very explosive component.

In a recent research note, the analysts at Merrill Lynch make a big move by adding Netflix and D.R. Horton to the firm’s Growth 10 portfolio. They replace Andeavor and Affiliated Managers Group. Over the past 10 years, the portfolio has outperformed the S&P 500 Growth benchmark by 249.2% to 177.5%.

Here are the 10 stocks that now make up the Merrill Lynch Growth 10 portfolio. Of course, all are rated Buy at Merrill Lynch.

Amazon

This absolute leader in online retail and dominant player in cloud storage business remains the top pick on Wall Street. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.

The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.

The Merrill Lynch price target for the shares is $1,840, and the Wall Street consensus target is $1,820.20. The stock closed Friday at $1,580.95 a share.

D.R. Horton

This is one of the highest volume builders in the United States and a top pick at Merrill Lynch, also residing in the firm’s US 1 list. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country and is positioned in 78 metropolitan markets in six major regions. It develops single-family homes primarily for first-time and move-up buyers.

Approximately 80% of revenue is derived from the Southeast, South Central and West regions, all of which continue to see very solid growth. D.R. Horton also provides mortgage financing and title agency services to homebuyer.

Shareholders receive a 1.12% dividend. Merrill Lynch has a $74 price target, and the consensus target is $56.10. Shares closed Friday at $44.71.

Facebook

The huge social media leader has been volatile recently after the disclosure of user data being compromised, but absolutely blew out earnings. Facebook Inc. (NASDAQ: FB) operates the largest social network, with over 2.0 billion monthly active users and over 1.4 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

A stunning 88.7% of fund managers have the social media giant in their portfolios, and despite the recent issues, there is no reason to think many will be selling all their shares.

The $215 Merrill Lynch price target is less than the $216.06 consensus price target. Shares closed on Friday at $176.71.