Analysts recommend these growth and value stocks.
For the first time in recent memory, value stocks are mostly keeping pace with growth stocks so far this year. Growth stocks have led the market charge for more than a decade, but value stock investors argue that elevated inflation levels and the potential for higher interest rates could soon shift the market’s preference back in favor of value. The good news for investors is that a well-balanced portfolio should include both growth and value stocks, so there’s no need to choose sides. These growth and value stocks should add balance to your investing strategy, according to Bank of America.
Google and YouTube parent company Alphabet has been one of the growth stock stars of the past decade. Over that period, Alphabet shares are up about 1,000%, and its revenue is up 516%. Despite the company’s immense $1.9 trillion market cap, Alphabet is still growing at an impressive clip. In the second quarter, the tech giant reported 62% year-over-year revenue growth. Analyst Justin Post says Alphabet is his top megacap tech stock pick for 2021 and believes Alphabet has room for earnings multiple expansion. Bank of America has a “buy” rating and a $3,150 price target for GOOGL stock.
Value stock: Morgan Stanley (MS)
Morgan Stanley is one of the largest U.S. investment banks and asset managers. The stock is up more than 50% year to date thanks to a strong environment for both financial markets and banks. But even after the rally, Morgan Stanley shares still trade at an attractive forward earnings multiple of just 14.4. Analyst Ebrahim Poonawala says the bull case for Morgan Stanley is driven by the company’s track record of solid execution and its potential to unlock value and earnings upside following recent acquisitions. Bank of America has a “buy” rating and a $105 price target for MS stock.
Growth stock: Amazon.com Inc. (AMZN)
Shares of online retail and cloud services giant Amazon have gained more than 1,500% over the past decade as its revenue has surged 917%. Amazon investors are in unfamiliar territory in 2021 given the growth stock’s 10% year-to-date return has significantly lagged the overall S&P 500. Still, Amazon’s 27.1% second-quarter revenue growth is reassuring, and Post says Amazon’s soft third-quarter guidance merely reflects temporary economic reopening headwinds. Post says Amazon Web Services and advertising growth have exceeded expectations and are positive for margins. Bank of America has a “buy” rating and a $4,250 price target for AMZN stock.
Value stock: T-Mobile US Inc. (TMUS)
Following its merger with Sprint, T-Mobile is now the third-largest U.S. wireless carrier. Unlike other telecom giants such as AT&T Inc. (T) and Verizon Communications Inc. (VZ), T-Mobile is reporting impressive growth numbers, including 13% revenue growth and 1.3 million new postpaid wireless customers in the second quarter. T-Mobile is included on Bank of America’s list of top 10 value stocks. Analyst David Barden says the company will likely reduce debt relatively quickly, creating opportunity for other shareholder-friendly actions. Bank of America has a “buy” rating and a $155 price target for TMUS stock.
Growth stock: Facebook Inc. (FB)
Social media stock Facebook is another example of a stock that has both growth stock and value stock properties. Facebook shares are up about 200% in the past five years, and its revenue is up 324.8% in that time. Facebook reported 56% revenue growth in the second quarter, yet its forward earnings multiple of 23.6 is attractive for a growth stock. Post says Facebook has significant opportunities within its shopping initiatives, which may help the company maintain its impressive growth numbers. Bank of America has a “buy” rating and a $425 price target for FB stock.
Value stock: PNC Financial Services Group Inc. (PNC)
PNC Financial Services is the seventh-largest U.S. bank by deposits and offers traditional banking, mortgage servicing and asset management. PNC shares are up 75% in the past year, and the stock’s 13.7 forward earnings multiple and 2.6% dividend make it an attractive value investment. Poonawala says PNC is well positioned to benefit from secular growth in U.S. regional banking, and its focus on middle market customers makes it an excellent economic reopening investment. PNC’s acquisition of BBVA SA also opens up new geographical markets. Bank of America has a “buy” rating and a $215 price target for PNC stock.
Growth stock: Netflix Inc. (NFLX)
Shares of streaming video leader Netflix are up almost 2,000% over the past decade, and Netflix’s revenue has increased by 843% in that time. But like Amazon, Netflix shares have lagged so far in 2021, generating just a 15% gain year to date despite recently reporting 19.4% revenue growth in the second quarter. Analyst Nat Schindler says Netflix still has a long runway of market share gains from linear TV, and rising engagement suggests substantial pricing leverage. Gaming is a potential long-term growth wild card as well. Bank of America has a “buy” rating and a $680 price target for NFLX stock.
Value stock: Carrier Global Corp. (CARR)
Carrier Global provides heating, ventilation, air conditioning, refrigeration, fire and security solutions. The company reported 37% second-quarter revenue growth, but the stock is also reasonably valued at 23.1 times forward earnings. Analyst Andrew Obin says Carrier’s announced sale of subsidiary Chubb will boost margins, improve free cash flow conversion, reduce balance sheet leverage and potentially facilitate earnings multiple expansion. Obin says summer residential demand is strong, and Carrier’s guidance for the second half of the year is likely conservative. Bank of America has a “buy” rating and a $70 price target for CARR stock.
Growth and value stocks to buy:
— Morgan Stanley (MS)
— Amazon.com Inc. (AMZN)
— T-Mobile US Inc. (TMUS)
— Facebook Inc. (FB)
— PNC Financial Services Group Inc. (PNC)
— Netflix Inc. (NFLX)
— Carrier Global Corp. (CARR)
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