Analysts are bullish on these companies.
A lot can happen in the stock market in one quarter. In fact, the S&P 500 just finished its worst first quarter of all time, dropping more than 20% to open 2020. But as brutal as things have been for investors this year, it just takes one quarter to turn things completely around. The Bank of America analyst team recently selected its top 10 stocks to buy in the second quarter. These 10 stocks are specifically chosen because they are high-conviction ideas with specific bullish catalysts coming within the next three months.
Ameren Corp. (ticker: AEE)
Analyst Julien Dumoulin-Smith says Ameren is a rarity in today’s market, considering it is a defensive utility stock that has a strong leverage profile. Utility stocks as a whole underperformed during the COVID-19 market sell-off, largely due to their subpar balance sheets. Dumoulin-Smith says Ameren has plenty of liquidity and should outperform its peers during the market recovery. Near-term catalysts include the stock’s defensiveness and its potential to boost its 2.7% dividend given its earnings growth has outpaced its dividend growth in recent years. Bank of America has a “buy” rating and $80 price target for AEE stock.
Analyst Wamsi Mohan says Apple’s fiscal second-quarter preannouncement back in February likely eliminated risk associated with its upcoming earnings report. Mohan says most of the negative news related to Apple’s near-term headwinds is already priced into the stock, including the negative impact of COVID-19 disruptions on iPhone sales. Apple Stores in China have already reopened, and Mohan says he wouldn’t be surprised to see Apple announce dividend and buyback hikes on its second-quarter earnings call given its massive cash balance. Bank of America has a “buy” rating and $300 price target for AAPL stock.
Fidelity National Information Services (FIS)
Fidelity National Information Services is a software, services and technology outsourcing provider for the financial services industry. Analyst Jason Kupferberg says Fidelity isn’t completely immune to coronavirus disruptions, but it has less risk than many of its peers. Roughly two-thirds of Fidelity’s services involve mission-critical, multiyear recurring revenues that should be protected from near-term market volatility. While the pace of new bookings will likely slow in 2020, Kupferberg says he doesn’t anticipate large banking contracts secured in the fourth quarter are at risk. Bank of America has a “buy” rating and $174 price target for FIS stock.
Honeywell International (HON)
Analyst Andrew Obin says the COVID-19 outbreak will test Honeywell’s business model of pushing innovation to drive market share gains and using hardware sales as a way of opening the door for software and services offerings. However, roughly a third of Honeywell’s 2019 gross profits came from software and services, which is a high-margin, highly recurring revenue source. During this period of market volatility, Obin says Honeywell’s 2.6% dividend, its strong balance sheet and its relatively low operational risk will appeal to defensive investors. Bank of America has a “buy” rating and $155 price target for HON stock.
Lowe’s Companies (LOW)
Home improvement giant Lowe’s is in the process of completing a multiyear transformation strategy that involves improving its supply chain, optimizing its operations and gaining professional customer market share. Analyst Elizabeth Suzuki says Lowe’s has spent the past two years reshuffling its management team and trimming underperforming stores and concepts. In 2020, Lowe’s is finally well-positioned to close its valuation discount to competitor Home Depot (HD). In the near term, Americans stuck at home are likely taking on do-it-yourself home improvement projects. Bank of America has a “buy” rating and $114 price target for LOW stock.
Given Netflix’s subscription model, the company’s financials won’t necessarily benefit from a large uptick in streaming hours while COVID-19 stay-at-home orders are in place. However, analyst Nat Schindler says the coronavirus shutdown should boost subscriptions and help Netflix penetrate markets around the world. Schindler says third-party data and anecdotal reports suggest Netflix could see a surge in subscribers in the first half of 2020. He also says there shouldn’t be too much turnover of existing subscribers given Netflix’s stickiness and low price point. Bank of America has a “buy” rating and $426 price target for NFLX stock.
Newmont Corp. (NEM)
Flight-to-safety investment gold is one of the few assets that has performed well so far in 2020. Gold prices are up 6.4% in 2020, and shares of the world’s largest gold miner, Newmont, are up 15.3%. Analyst Michael Jalonen says Newmont is confident it can generate 6 million ounces per year over the next decade purely from organic projects. Jalonen projects all-in sustaining costs will drop from $950 per ounce in 2020 to between $800 and $900 per ounce by 2024. Bank of America has a “buy” rating and $58 price target for NEM stock.
Procter & Gamble Co. (PG)
Analyst Olivia Tong says Procter & Gamble’s defensive portfolio of products should protect it from downside as the crisis plays out. Active fund managers were extremely underweight the stock prior to the outbreak, and fund rotation could create a tailwind for the stock. Increased usage of health and hygiene products could be a near-term sales catalyst for the stock, and Tong says investors can expect elevated revenue in the first half of 2020. The company’s capital position is strong, and it also pays a 2.6% dividend. Bank of America has a “buy” rating and $135 price target for PG stock.
Public Storage (PSA)
Analyst Jeffrey Spector says Public Storage has both a strong balance sheet and relatively stable cash flow, even during an economic downturn. Public Storage has less than half the leverage of its real estate investment trust peers, and it had $400 million of cash on hand as of the end of 2019. Spector predicts the company’s 93% occupancy rate will remain relatively stable in the first half of the year. If anything, early school closures could drive occupancy seasonally higher than usual. Bank of America has a “buy” rating and $267 price target for PSA stock.
Thomson Reuters Corp. (TRI)
Analyst Gary Bisbee says Thomson Reuters is another example of a business that is relatively recession-proof. During the 2008 financial crisis, the company’s current assets (excluding Refinitiv) endured only about a 1% drop in revenue. Prior to the coronavirus outbreak, Bisbee says, Thomson Reuters had accelerating organic revenue growth, strong cash flow and consistent margin expansion. Despite the potential for double-digit earnings and free cash flow growth over the next several years, Bisbee says Thomson Reuters shares still trade at a valuation discount to peers. Bank of America has a “buy” rating and $81 price target for TRI stock.
Stocks to buy in the second quarter:
— Ameren Corp. (AEE)
— Apple (AAPL)
— Fidelity National Information Services (FIS)
— Honeywell International (HON)
— Lowe’s Companies (LOW)
— Netflix (NFLX)
— Newmont Mining Corp. (NEM)
— Procter & Gamble Co. (PG)
— Public Storage (PSA)
— Thomson Reuters Corp. (TRI)