Look for the market to rebound.
The fourth quarter is off to a shaky start for U.S. stocks, but the October sell-off may have created some buying opportunities for long-term investors. The S&P 500 index has pared some of its 2018 gains to start off the quarter but remains up 2.7 percent year-to-date. With a number of uncertainties surrounding the November midterm elections, third-quarter earnings season and the ongoing trade war, stock selection is critical in today’s market. The Bank of America analyst team recently selected the following eight stocks as its best stocks to buy for the fourth quarter.
CVS Health Corp. (CVS)
CVS recently received the green light from the Department of Justice to proceed with its acquisition of Aetna (AET). While the approval is still conditional at this point, analyst Michael Cherny says the go-ahead removes a major uncertainty for investors. Cherny says CVS has an opportunity to re-shape the health care industry by creating a “Store of the Future,” which will integrate CVS and Aetna data, analytics and services into CVS stores and morph them into health care service destinations. Bank of America has a “buy” rating and $90 price target for CVS stock.
First Bancorp Puerto Rico (FBP)
Analyst Ebrahim Poonawala says the ongoing rebuilding efforts following Hurricane Maria’s destruction in Puerto Rico could potentially create a major long-term stimulus for the Puerto Rican economy. If Puerto Rico can get its economy on track, Poonawala says First Bancorp Puerto Rico may soon generate the type of cash flow that would allow the company to improve its balance sheet, reduce its level of non-performing assets and even possibly return capital to investors. Bank of America has a “buy” rating and $11.50 price target for FBP stock.
Norwegian Cruise Line Holdings (NCLH)
The wave of large hurricanes in 2018 may have spooked investors because cruise stocks like Norwegian Cruise Line Holdings have lagged the market. However, analyst Andrew Didora says Bank of America’s credit card data suggests strong demand from customers. Early 2019 commentary from management has been positive up to this point. Rising oil prices will continue to pressure margins, but Didora says cruise prices are also trending higher. With an earnings multiple of only 12, Norwegian offers investors the best value of the group. Bank of America has a “buy” rating and $72 price target for NCLH stock.
Nokia Oyj (NOK)
Expectations for Nokia were low headed into the fourth quarter, but analyst Tal Liani says Nokia could easily clear its low earnings bar. Management has said foreign exchange conditions should improve, and Liani says the broader market is likely on the upswing heading into the highly anticipated launch of 5G wireless networks. With the stock trading at a forward earnings multiple of just 15, Liani says the risk/reward balance is skewed positively for NOK stock at the moment. Bank of America has a “buy” rating and $6.65 price target for NOK stock.
Target Corp. (TGT)
Analyst Robert Ohmes says second-quarter traffic and sales momentum for Target likely continued in the third quarter. Ohmes is anticipating an impressive third-quarter earnings report from Target given several positive catalysts for the company. The third quarter was the first full quarter since the Toys R Us closings. In addition, Target’s merchandising and digital investments, including store remodeling, should add to sales momentum. Ohmes says there could be upside to his 5 percent same-store sales growth target. Bank of America has a “buy” rating and $100 price target for TGT stock.
United Technologies Corp. (UTX)
United Technologies has a conservative balance sheet and impressive free cash flow, which combine to give the company financial flexibility for strategic acquisitions and capital returns. Analyst Ronald Epstein says United’s acquisition of Rockwell Collins (COL) is the perfect example of the company’s disciplined approach to spending and has created an opportunity to expand United’s commercial aircraft design capabilities to include almost everything but the airframe. Epstein says United’s growth profile, its end-market exposure and its operating leverage are all positives. Bank of America has a “buy” rating and $195 price target for UTX stock.
Vale SA (VALE)
Analyst Timna Tanners is bullish on the global steel and iron ore markets and says Vale should continue to get near record premiums for its high-end ores. Vale is unique among its peers because Tanners says it will not need to invest as aggressively over the next several years to maintain and grow its production, leaving open the possibility for additional capital returns. Vale is even trading at a discounted 2019 enterprise multiple relative to its peer group. Bank of America has a “buy” rating and $18 price target for VALE stock.
Exxon Mobil Corp. (XOM)
Analyst Doug Leggate says Exxon could be on the verge of a long-term earnings reset. Leggate says oil investors have expected oil majors like Exxon to sacrifice growth in favor of cash flow and capital return, but Exxon has instead chosen to heavily invest in a multi-year growth plan. He says the second quarter likely marked the low point for production, and Exxon management knows it needs to demonstrate some progress with its strategy by increasing near-term focus on earnings. Bank of America has a “buy” rating and $110 price target for XOM stock.
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