Bank of America sees at least 50% upside for these stocks.
The S&P 500 has performed extremely well so far in 2021, gaining 16% year to date. No matter how well the S&P 500 performs, investors are always looking for ways to beat the market. Stocks with the most potential upside typically come with more risk, but with the economy ramping up and no signs of trouble ahead for the market, now may be a great time for investors to be a bit more aggressive than usual. Here are eight S&P 500 stocks to buy with the most potential upside, based on Bank of America analysts’ price targets.
APA Corp. (ticker: APA)
APA is the parent company of Apache Corp., one of the largest U.S. oil and gas exploration and production companies. Oil stocks have been hot so far in 2021 as reopening and travel demand have sent crude oil prices soaring close to their highest levels in six years. Analyst Doug Leggate says APA’s guidance of at least $1 billion in free cash flow (FCF) for fiscal 2021 is extremely conservative compared to his own $1.8 billion FCF projection. Bank of America has a “buy” rating and $40 price target for APA stock.
Valero Energy Corp. (VLO)
Valero Energy is one of the largest independent U.S. petroleum refiners. Leggate says Valero’s position as the largest U.S. ethanol producer and its growth in renewable diesel make it the leader in green energy within the refining group. Earlier this year, Valero agreed to anchor the carbon capture and storage system for the Midwest, which could also come with significant carbon sequestration credits. Leggate says Valero is an exceptional economic recovery play with significant valuation upside. Bank of America has a “buy” rating and $110 price target for VLO stock.
Micron Technology Inc. (MU)
Micron Technology manufactures semiconductor memory products, including DRAM and NAND flash memory. Micron stock has underperformed its semiconductor peer group in 2021, but analyst Simon Woo says there are several bullish catalysts ahead for the company. Woo is projecting a strong recovery in DRAM pricing, which should boost margins. In addition, he says Micron has a strong track record of opportunistic acquisitions and new tech node migration. Finally, Micron is one of only a few semiconductor stocks with the potential for significant shareholder returns via buybacks. Bank of America has a “buy” rating and $125 price target for MU stock.
Occidental Petroleum Corp. (OXY)
U.S. oil and gas exploration and production giant Occidental Petroleum is yet another example of an oil stock that may have significant upside remaining. Leggate says Occidental is almost completely unhedged, giving it nearly full exposure to the strong oil price environment in 2021. He estimates that Occidental generated a 5% FCF yield in the second quarter. He is projecting a 20% FCF yield for the remainder of 2021 and a 40% cumulative FCF yield through 2022, which should help unlock value for investors. Bank of America has a “buy” rating and $44 price target for OXY stock.
Penn National Gaming Inc. (PENN)
After a huge year in 2020, gambling company Penn National Gaming has been among the worst-performing S&P 500 stocks of 2021, down more than 16% year to date. Much of Penn’s big rally earlier this year was driven by high expectations for the company’s new Barstool Sportsbook & Casino app, and analyst Shaun Kelley says Penn is on track for another record quarter when it reports earnings in early August. Kelley says Penn’s recent $400 million bond offering was also opportunistic, and the company now has more than $2 billion in cash. Bank of America has a “buy” rating and $110 price target for PENN stock.
Fox Corp. (FOX)
Fox is a major media organization and owner of the Fox broadcast network, Fox News, Fox Business and 28 TV stations. Analyst Jessica Reif Ehrlich says Fox’s fiscal 2022 will be an investment year as the company focuses on beefing up its Tubi streaming service and other digital media assets. Ehrlich estimates that Fox will spend between $200 million and $300 million on these digital initiatives, a move that she believes is prudent given current investor focus on direct-to-consumer streaming offerings. Bank of America has a “buy” rating and $54 price target for FOX stock.
Freeport-McMoRan Inc. (FCX)
Freeport-McMoRan is one of the world’s largest copper producers and a gold and molybdenum miner. Analyst Timna Tanners is projecting that elevated copper prices will help Freeport generate $3.5 billion in 2021 FCF, more than triple its $1.1 billion in 2020 FCF. Tanners says the company can use that excess cash to pay down debt and increase shareholder returns. Freeport’s net debt dropped from $6.1 billion to $5.2 billion in the first quarter after the company generated $705 million in FCF. Bank of America has a “buy” rating and $54 price target for FCX stock.
Seagate Technology Holdings PLC (STX)
Seagate Technology is a data storage company that specializes in hard disk drives and solid state drives. Analyst Wamsi Mohan says the hard disk drive market is improving, and Seagate is well-positioned to benefit. In June, Seagate preannounced roughly $2.95 billion in second-quarter revenue and $1.85 in adjusted earnings per share, exceeding the company’s previous guidance. Mohan says that momentum should carry over into the third quarter, and he is projecting revenue improvements, margin expansion and continued shareholder returns. Bank of America has a “buy” rating and $135 price target for STX stock.
Eight S&P 500 stocks with big upside:
— APA Corp. (APA)
— Valero Energy Corp. (VLO)
— Micron Technology Inc. (MU)
— Occidental Petroleum Corp. (OXY)
— Penn National Gaming Inc. (PENN)
— Fox Corp. (FOX)
— Freeport-McMoRan Inc. (FCX)
— Seagate Technology Holdings PLC (STX)
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