The financial markets just cannot wait for the first of multiple interest rate cuts from the U.S. Federal Reserve. Investors have been positioning and looking for new ideas for their capital as rates begin to normalize over the coming year. Maybe it’s time to look at a top investment banking firm’s top stock picks?
BofA Securities has its prized US1 List of stocks, which is effectively the same as a Focus List or Top Picks List at rival brokerage firms. The September update in the first week of the month included a total of 11 new additions due to their individual attributes rather than the market as a whole. The firm’s view is that the Magnificent 7 need to step aside and allow “the other 493 stocks in the S&P 500” some room. BofA is expecting these stocks to outperform mega-cap techs as interest rates favor the cyclical names.
The US1 List update did warn that the S&P’s performance is better in the months after the first rate cut when the economy is still expanding versus when the economy is in recession. That seems logical enough. The good news for that assumption, at last as of now, is that the economy is not expected to go into a recession. Current projections from Federal Reserve staff and also outside analyst and economist forecasts are modeling a soft economic landing with slower growth.
BofA also pointed out that 7 of the 9 new stocks the firm added to the US1 List are in cyclical sectors and none are in technology or communication services. Oggonomics is only featuring the cyclical stocks and another player was not included because its financial position being less cyclical than other financial stocks.
Some of the stocks may have been added to the US1 List in August, but all are still close to their inclusion prices and all were under the BofA price objectives at the time this was prepared. It should be noted that September is historically the worst month of the year for stocks. It just hasn’t been the case in 2024 as the rally from the August panic was only briefly interrupted that first week of September. The Dow and the S&P 500 have both just hit new all-time highs early on September 17, 2024.
These opinions and price objectives featured are the opinion of BofA Securities. Oggonomics does not have any buy, sell, hold nor even short-sell ratings or price targets on any of these stocks. This abbreviated US1 List has also been featured in alphabetical order to avoid the appearance of any rankings or preferences.
American Healthcare REIT, Inc. (NYSE: AHR) is one of two REITs that should do well under lower rates. BofA expects continued occupancy improvements and a re-rating (i.e. higher multiples) after further investor education. It sees senior housing growing 6-times faster than overall US population. There is also a special situation here as a catalyst as BofA’s earnings estimates do not even include its Trilogy purchase option which is said to be accretive to its 2025/26 estimates. At $22.00, BofA’s price objective is $29.00 and investors get a 4.1% dividend yield on top.
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Chipotle Mexican Grill, Inc. (NYSE: CMG) has a $80 billion market cap and it was added to the US1 List after the recent share weakness from the CEO joining Starbucks. BofA noted it has the highest restaurant margins and a lot of room to grow its stores. The stock has performed badly since its major stock split and company specific concerns are believed to be proven transitory ahead. CMG’s recent multiple compression is shown to be a buying opportunity as its fundamentals remain strong as does its momentum — and the firm sees Chipotle recovering to its prior peak. At $58.00, BofA’s price objective is $71.00 and it pays no dividend at this time.
Eli Lilly & Co (NYSE: LLY) may have surged 50% in 2024, but around $900 now the firm has a much higher $1,150 price objective. It has historically been the case that pharmaceutical stocks are defensive, but it’s still on the list. BofA sees a potential path for continued near-term multiple expansion. The team sees a wide competitive moat in the $100B+ obesity market, and another boost is expected from tirzepatide label expansions into sleep apnea, liver disease, cardiovascular disease and chronic kidney disease. Next-generation GLP-1s and triple GGG should increase its valuations over the next few years along with margin expansion and diversified growth that should be significantly higher than for peers in the next three-year period.
McCormick & Co. (NYSE: MKC) has a $86.00 price objective at BofA Securities and the firm is calling for volume growth and sees more M&A opportunities here. McCormick was called out as one of the only packaged food companies in the entire sector which is still seeing volume growth. BofA also noted that it was early to invest in price gaps which are allowing it see that volume growth while other brands are seeing declines. They even called it a consistent dividend aristocrat offering an attractive yield (2.00%) if rates decline.
Mid-America Apartment Communities, Inc. (NYSE: MAA) is one of two REIT that was added to the US1 List for its quality apartment complexes. BofA noted that MAA shares look inexpensive relative to a recent large acquisition that undervalues the REIT. The firm also sees the Sunbelt region as past peak supply deliveries with improving market rent growth in 2026/27 and with estimate revisions heading up in 2025/26. At $163.00, it has a $189 price objective and MAA has a dividend yield of 3.5%.
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NVR, Inc. (NYSE: NVR) is considered to be a high quality homebuilder with a $29 billion market cap that should benefit as housing affordability will improve with lower mortgage rates. Unlike some other builders, BofA also noted that NVR has little exposure to the lagging Florida and Texas housing markets. Most investors are going to flinch when they see a $9,000+ stock price — does that compete with a down payment on a home? BofA’s price objective is $9,700.
Uber Technologies Inc. (NYSE: UBER) is listed as one of the fastest growers in Internet according to BofA. The $72.75 recent share price compares to a $88.00 price objective at the firm. Uber has a $152 billion market cap and currently offers no dividend. According to BofA, Uber has managed to beat a high bar for margin expectations in the first half of 2024. It is also now projecting $10-plus billion in 2026 free cash flow that could allow ample stock buybacks. BofA further noted the impressive strides to improve its finances, while expanding its investor base, and even noted that Uber recently rose to an Investment-Grade credit status.
