In this climate, picking stock winners can get tricky.
Bank of America has updated its US1 top stock list, its short list of the analyst team’s favorite U.S. stock picks. For most of the past nine years, choosing the best stocks to buy has been relatively easy due to the strength of the bull market. So far in 2018, that hasn’t been the case. Year to date, the Standard & Poor’s 500 index is down more than 1 percent. In climates such as the current one, stock selection is critical, and Bank of America’s US1 list is compiled with the goal of generating market-beating performance. Here’s a look at nine stocks on the latest list.
American Express (NYSE: AXP)
Following the American Express analyst day event In March, analyst Kenneth Bruce says the company is committed to achieving its financial targets and continuing its recent momentum. American Express has focused on expanding its lending to existing customers, a strategy that Bruce says makes its business more predictable. Loan growth and billings have been on the upswing, and Bruce says the stock is a value. If U.S. GDP growth remains solid and American Express can return to stable earnings growth, Bruce says AXP stock’s price-earnings ratio would likely expand from 13.5 to at least 15.
Salesforce.com (CRM)
Analyst Kash Rangan says the recent Salesforce buyout of MuleSoft is a clear indication that the company has its eyes on the long-term growth picture. Investors initially balked at MuleSoft’s $6.5 billion price tag, but Rangan says the combination of Salesforce’s massive customer base and MuleSoft’s software could easily add $20 billion to $30 billion to Salesforce’s addressable market in the next several years. Despite its large size, Rangan projects 17 percent revenue growth from Salesforce and says the company will be a long-term market share gainer in the high-growth cloud services market.
DowDuPont (DWDP)
After speaking with DowDuPont upper management at the Merrill Wealth Management Conference in March, analyst Steve Byrne says that the logistics of the massive merger between Dow and DuPont is complete, but the value creation has yet to begin. DowDuPont is currently comprised of three divisions — agricultural, material science and specialty products. Byrne says the company will unlock major value for investors when it splits the three divisions into separate companies sometime before 2020.
Goldman Sachs Group (GS)
Investors expected the combination of rising interest rates, banking deregulation and lower taxes to create the perfect storm for big banks like Goldman Sachs in 2018, but bank stocks have struggled so far this year. Analyst Michael Carrier says all three of these catalysts are still in play, and Goldman’s trading business should experience a major tailwind from the uptick in market volatility so far this year. Goldman draws a higher percentage of its total revenue from trading than any other broker-bank, and Carrier says Goldman’s commodities and currency segments are likely to improve this year as well.
Humana (HUM)
With or without a Walmart (WMT) buyout, analyst Kevin Fischbeck says Humana is a long-term value for investors. Fischbesk says an outright buyout by Walmart seems unlikely, but Humana could benefit from an expanding relationship with Walmart, which has been a partner since 2005. He says Walmart and Humana could try to corner the senior health care market by emphasizing the value aspect of its services. Humana has already established a 17 percent market share in the Medicare Advantage market, a segment which Fischbeck says will be the fastest-growing market in managed care over the next decade.
Qualcomm (QCOM)
Qualcomm was just recently added to the US1 list in late March after its proposed merger with Broadcom (AVGO) was blocked on national security concerns. Analyst Tal Liani says Qualcomm’s own pending buyout of NXP Semiconductors (NXPI) will likely serve as a positive catalyst for the stock when it is officially approved. In addition, Liani says Qualcomm will benefit from ongoing licensing negotiations with Huawei Technologies and Apple (AAPL). Finally, Liani says corporate restructuring, including management changes, and more aggressive cost-cutting could help Qualcomm significantly improve its numbers.
Tiffany & Co. (TIF)
After meeting with new CEO Alesandro Bogliolo, analyst Lorraine Hutchinson says Tiffany & Co. is aiming for a total brand refresh. Hutchinson says management is focused on updating its marketing methods by increasing advertising impressions and testing initiatives such as Blue Box Café and pop-up stores. Management expects this refresh will generate margin expansion as soon as 2019, and Hutchinson says that the company’s recent uptick in sales comps is an early sign that the refresh is working. Opportunities to improve inventory management and shorten product launch cycles create a compelling risk-reward scenario for investors, Hutchinson says.
Walmart (WMT)
Amazon.com (AMZN) has gotten much of the attention in the retail sector of late, but analyst Robert Ohmes says Walmart, not Amazon, is the compelling long-term investment. Ohmes says the drop in e-commerce revenue growth in the first quarter that spooked Walmart investors was simply a short-term phenomenon, and he is confident that Walmart can achieve its target of 40 percent online sales growth in fiscal 2019. Walmart is beating Amazon to the punch with grocery delivery, and Ohmes says discount stores like Walmart should outperform the market over the next decade.
Nvidia Corp. (NVDA)
Nvidia is the latest addition to the US1 list. Despite recently reporting that it is temporarily putting its autonomous vehicle testing on hold, analyst Vivek Arya says Nvidia will be back on the road in no time. Arya says Nvidia is at the epicenter of four powerful long-term growth markets: driverless vehicles, artificial intelligence, online gaming and virtual reality. Arya says the company has limited exposure to the slumping cryptocurrency mining market, and the stock’s 7.8 percent sell-off in the past week has made it an exceptional value for investors willing to ride out the near-term volatility.
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9 Stocks Bank of America Loves in an Unpredictable Market originally appeared on usnews.com
