Forget big stocks. Bank of America’s best small and medium-sized stocks
From several weeks of losing streaks to rallies in the bear market, it has been a roller coaster ride for the markets this year as investors weigh the risk of a more aggressive monetary policy and a growing chorus of recession warnings. Major US indices saw a big rise in Tuesday trading, reversing last week’s fall, but staying deep in the red this year. The S&P 500 and Nasdaq Composite are down more than 20% and 24% respectively this year, placing them in the bear market. The Dow Jones Industrial Average is down 1[ads1]6.6 percent over the same period. While investors may be focused on bigger and more well-known names in the market, Bank of America believes that some small and medium-sized stocks provide an opportunity for investors. The Bank of America’s list of 26 “best small and medium-sized business ideas” for 2022 has an average potential upside of 60% over the next 12 months, said the bank’s strategists, led by Jill Carey Hall, on June 21. Inflation hedging Bank noted that equities with sound margins and pricing have been rewarded in an environment of rising interest rates and sky-high inflation. Shares that are well positioned to thrive in such an environment include the food delivery platform DoorDash, which the bank says is “resistance to raw materials and food price inflation.” Such price pressure can even contribute to DoorDash’s margins, the strategists said. They predict that margins will improve in 2023. The bank has a price target of $ 90 on the stock, which represents a potential of 42.9% to the share price closing around $ 63 on 21 June. The bank also likes Illinois-based Option Care Health as the “least vulnerable” to wage cost pressures. The bank also expects the stock to see further upside from future agreements as it continues to distribute its improved free cash flow. The company’s shares closed at around $ 26 on June 21, indicating a potential upside of 46.2% to the bank’s price target of $ 38. The California-based air leasing company Air Lease is another of the bank’s top choices. Bank of America expects the company to benefit from an improvement in commercial aviation, with the worst pandemic now “in the past.” The company will also benefit from rising interest rates due to its ability to transfer higher debt costs while seeking higher premiums from tenants with lower investment rates, the strategists said. The bank has a price target of $ 55 on the stock – an implicit upside of 77.4% to the closing price of around $ 31 on Tuesday. Recession-resistant names Bank of America’s list also includes several stocks it believes are well positioned to cope with a recession. Technical consulting firm Gartner is one such stock. The bank described it as a “high quality and defensive” name with an upside for sales, margins and earnings. The company enjoys “strong demand” for its services, while core research sales are relatively “recession-resistant,” according to the bank. The bank’s price target of $ 340 implies a potential upside of 45.9% to the share price closing at around $ 233 on June 21. Bank of America also likes the low-cost retailer Ollie’s Bargain Outlet as a potential benefit to a shift in consumer behavior. The bank believes that consumers will face increasing economic pressure with the roll-out of government support programs and curbing inflation. “We expect this to trade down to Ollie’s, where we found that prices are on average 36% below Walmart and Amazon,” said Hall. The bank has attributed a price target of $ 75 to the stock, which represents a potential upside of 25% to the closing price of around $ 60 on Tuesday. Electronics maker Jabil is another Bank of America favorite. The bank says the company has been exploited in end markets that see secular growth and are “generally recession-proof.” The company considers Apple a “significant customer”. The bank noted that Jabil has been able to expand revenues and margins despite supply chain challenges and inflation, at the same time as cost increases are passed on to customers. The Bank of America’s share price target of $ 82 per share implies a potential upside of 51.9% to the stock’s closing price of around $ 54 on June 21.
