Best stocks to buy now
Defense-industry stocks are on the cheap side, and the market will recognize this, as concluded by investment company Stifel.
Over the short term, the shares of the firm have risen 20%, but have lagged the market on a long-term basis.
In a letter to clients on Thursday night, analyst Joseph DeNardi raised the military stock to buy from hold, believing that the market had got it wrong about the future of the sector.
“In our opinion, concerns about Northrop’s exposure to US defense budget pressures underappreciate (1) its favorable alignment with areas of strategic longer-term importance and (2) geopolitical tensions that are rising and may accelerate as COVID dynamics normalize,” the note stated.
Northrop Grumman’s stock has gained less than 7% since the beginning of 2020, compared to nearly 30% for the S&P 500. Over the same time period, the iShares U.S. Aerospace & Defense ETF has been flat.
Stifel believes that the stock’s and industry’s underperformance makes it worthwhile for investors to invest, even if there are risks associated with specific projects.
“Northrop Grumman’s work on the B-21 or [ground-based strategic defense] is more than reflected in the company’s relative valuation. In our opinion, the potential upside from an increase in Northrop’s relative valuation outweighs program risk. “We believe that owning both Lockheed and Northrop mitigates certain company-specific risks that both face,” according to the note.
Stifel raised its price target on the stock from $350 to $475 per share. The new target represents a nearly 30% increase in value. Lockheed Martin is also rated as a buy by the firm.
Lithium-ion battery electric vehicle (EV) companies, especially those that have gone public via reverse mergers with special-purpose acquisition companies (SPACs), are expected to lose out to the incumbents in the auto industry, according to the findings of BofA’s Car Wars study, published on Wednesday.
BofA’s car choices with a buy rating are:
“Honda will lead the industry in terms of replacement rate, with plans to refresh virtually its entire product portfolio over the next four model years,” according to BofA analysts. They also like Honda’s upcoming Civic model because of its modular design, which allows it to share parts with other models, which is expected to “improve the company’s margin profile.”
Toyota trails Honda in terms of replacement rate, according to BofA, with a lull in 2022-2023 followed by a “significant reacceleration” in 2024-2025. Toyota’s electric vehicle strategy, which includes hybrid, electric, and fuel cell models, is also appealing to the bank.
GM has a different strategy than its competitors, focusing on “niche, lower volume electric vehicles rather than the traditional effort of refreshing high volume models,” according to BofA. The bank anticipates that the automaker will launch up to 20 EVs in the United States over the next four years. “The emphasis on future business provides long-term upside potential,” the analysts concluded.
Although a “litany” of EV start-ups have recently gone public through reverse mergers with SPACs, BofA analysts are “skeptical about their ability to execute.” Arrival, a British electric vehicle company, began trading on the Nasdaq in March, while CCIV’s stock plummeted following its merger with Lucid Motors.
“We anticipate a fiercely competitive environment from incumbent OEMs [original equipment manufacturers] ramping up alternative powertrain product launches, which may limit success for these newer entrants,” BofA analysts added.
“Reflation is not inflation,” according to one major US fund manager.
Some respondents pointed out that developed countries’ populations are aging, which reduces consumer demand and acts as a brake on inflation. The increased use of automation in manufacturing and other business processes also contributes to wage stagnation. Inflation is slowed by high levels of consumer debt, which is a problem in advanced countries such as the United States.
Another investor in the United States pointed out that rising inflation was, at least in part, planned. Central banks want higher inflation as well as higher growth. “Central banks are making a policy decision, [and] when developed market inflation exceeds 2.5 percent, central banks will change course,” the source said.
One of the nine respondents who believe inflation is here to stay expressed dissatisfaction with the Fed’s continued monetary support for the economy.
“If the economy is recovering and the Fed expects a 4.5 percent unemployment rate by the end of 2021, why do we still need crisis monetary policy?” The investor inquired by email. “How come the Fed still needs to buy $120 billion in assets every month?”
According to the same strategist, there is $4 trillion in cash sitting in money market funds, and “this will get put to work in some form,” putting a floor under asset prices or even pushing them higher.
Another major unknown for the markets is when the Fed will announce a timetable for withdrawing its monthly stimulus, which takes the form of bond purchases.
CNBC polled 30 strategists, and exactly half said the Fed will outline a tapering plan at either the Jackson Hole Symposium in Wyoming in August or the Fed’s September meeting.
According to one fixed-income strategist, the Fed’s withdrawal of stimulus is simply an acknowledgment of the economy’s recovery from the pandemic. As a result, because we’ve been here before, the market’s reaction will be more measured.”
Six strategists predict a 10-15 percent drop in the S&P 500, while two predict a 15-20 percent drop.
When asked about the Fed’s timeline for raising interest rates, strategists had widely differing opinions.
The majority of the strategists, ten in total, predicted a rate hike in the first half of 2023. Six stated that it will arrive in the second half of 2023.