Traders signal offers in the Standard & Poor's 500 stock index futures pit at the CME Group following the Federal Reserve meeting September 21, 2011 in Chicago, Illinois.

  • Investors should always diversify their portfolio to reduce risk.
  • With limited cash, one can try to bet on the bellwether stocks in each industry.
  • Bank of America Merrill Lynch has published a list of its 11 favorite stocks for next year — one S&P 500 stock from each of the 11 Global Industry Classification Standard sectors.
  • The firm’s 2018 list has generated a 3.2% average return rate, outperforming the benchmark S&P 500.

Investing is all about avoiding putting all your eggs in one basket.

Usually, the more diversified your portfolio is, the less risk you will bear. However, unless you are a big fund manager, you probably won’t buy more than a dozen stocks at a time. So, finding out the bellwether stocks in each industry is a good bet.

Bank of America Merrill Lynch is here to help. At the end of each year, BAML publishes a list of its 11 favorite stocks for next year — one in each of the 11 Global Industry Classification Standard sectors.

To be included in the list, a company must have a “buy” rating at the firm, and have exceptional fundamentals.

BAML says the list has proven to outperform the benchmark. Last year’s list has generated a 3.2% average return rate since it was published — versus the S&P 500’s 1.6% return, the bank says.  

Below are the 11 stocks that BAML says have the biggest growth potential in their sector next year:

Walt Disney

Ticker: DIS

Sector: Communication Services

BAML comments: “One of highest quality S&P 500 stocks. Strong free cash flow, medium equity duration, low leverage. Big catalysts in 2019 (Disney Streaming Services, etc.) Underweight by large-cap active funds.”

 

Source: BAML

General Motors

Ticker: GM

Sector: Consumer Discretionary

BAML comments: “Strong free cash flow, inexpensive valuations (6x fwd. P/E), underweight by large-cap active funds Positive betas to both real and nominal rates. Both near-term and longer-term potential catalysts in the pipeline (trade war resolution, autonomous driving, etc.)”

 

Source: BAML

Molson Coors Brewing

Ticker: TAP

Sector: Consumer Staples

BAML comments: “High quality, inex pensive (13x fwd. P/E), attractive FCF yield, above-market dividend yield Historically does well in periods of rising volatility. Underweight by large-cap active funds.”

 

Source: BAML

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