Bank of America best stocks recommendations
Bank of America prefers Aramark and Ryman Hospitality Properties because they are better positioned to reopen due to their greater exposure to pent-up service demand.
“Several of our 2H ideas benefit both from reopening and in the long run – from Aramark (ARMK) – which should see revenue rebuild from rising sports attendance and return to school/office, plus a focus on organic growth and a board prioritizing long-term value creation – to Ryman (RHP), a convention center lodging REIT that should benefit both from hotel real estate recovery and long-term tailwin
The Wall Street firm has a price target of $44 per share on Aramark and a price target of $100 per share on Ryman.
Bank of America also emphasized some high-quality stocks, which will be a key theme for the bank’s large and smallcap coverage in the second half.
According to the note, “Advance Auto Parts (AAP) is a defensive product category (auto parts) with pricing power that also benefits from reopening (driving).”
East-West Bancorp. is also expected to deliver among the best revenue growth and return on equity in the industry, according to the firm.
Bank of America has a price target of $223 per share on Advanced Auto Parts and a price target of $100 per share on East-West Bancorp.
The firm also highlighted companies with the ability to raise prices if inflation continues to rise. According to Bank of America, the best pricing power in the group is held by food processing firm Lamb Weston and machinery company Herc Holdings.
“Lamb Weston (LW) has the potential to implement meaningful price increases to food services customers (and is also a beneficiary of independent restaurant reopenings but has not been re-rated to the same extent as casual diners/foodservice distributors),” according to the note.
Bank of America has set a price target of $100 per share on Lamb Weston and $147 per share on Herc Holdings.
The Wall Street firm believes Colfax’s plan to split into two publicly traded companies will increase valuation.
According to the note, “in REITs, our team expects EPR Properties (EPR) to break out of covenant restrictions with rent collections hitting the high end of their target for 2Q, allowing it to reinstate its dividend, redeploy capital for acquisitions, and lower interest rate costs.”
Jazz Pharmaceutical’s underappreciated new product cycle, according to Bank of America, offers a catalyst path over the next 12 months.
The firm has a price target of $53 per share on Colfax and a price target of $62 per share on EPR Properties. Jazz Pharmaceuticals is expected to rise to $228 per share in the next year, according to Bank of America.
Harley Davison, L Brands, and Alaska Air Group were also named to the list by Bank of America.
Morgan Stanley promotes Alcoa (NYSE: AA)
According to Morgan Stanley, mining and metal companies seem to be in a good phase, and Alcoa should be one of the major winners in space.
“Alcoa has taken steps to improve profitability through its recent review of the portfolio and we think that it is well placed to take advantage of a constructive aluminum outlook supported by the supply-side reforms in China. Against the background of this bullish prospect, we expect to accelerate FCF generation and potential shareholder returns,” said the note.
According to Morgan Stanley, the company should also benefit from a Chinese government push to reduce carbon emissions.
“We expect that the company will benefit from the structural shift in the aluminum market leading to China’s decarbonization policies (~5% of country carbon emissions) and a capacity cap of 45 Mt which leads to demand for outpace by 2023,” said the Note.
To date, Alcoa shares have increased 47 percent but have retreated in the past month.
Morgan Stanley kept its $50 share pricing target on Alcoa, which is more than 47% higher than where the stock closed on Tuesdays.