Bank of America says it’s an official economic recovery now so history points to these stocks outperforming ahead
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There appears to be an economic rebound taking place — and history shows ways to play it in the market, according to Bank of America. “It’s official: we’re in a Recovery,” wrote strategist Savita Subramanian in a note to clients Sunday. While Subramanian noted the past few years have not felt like a well-defined “cycle,” the firm’s U.S. regime indicator improved for its second consecutive month in August. That means the tool is showing a recovery phase, she said. An average recovery lasts nine months, though shorter durations seen in recent history raise concern that this one may not have staying power, she said. When looking historically, a recovery is a good time to buy financials and sell utilities as cyclical industries tend to do well, Subramanian said. Value and risk also tend to lead, with the smallest decile poised to outperform. Given this indicator, Subramanian screened for stocks that can fare well in a recovery environment. To do this, she looked at stocks in the top 10% of the S & P 500 , averaging their scores in value, risk, low-quality and small-size characteristics. Here’s 10 that made the list: One name on the list was insurance company Assurant . While the stock has underperformed this year with a gain of 10.6%, the average analyst holds a buy rating with predictions of an upside of more than 21% ahead, according to LSEG, formerly known as Refinitiv. The company beat the second-quarter expectations of analysts polled by FactSet last month. Piper Sandler analyst John Barnidge joined the majority on Wall Street earlier in summer with an upgrade to overweight from neutral. “It is rare in our opinion to see shares trade below 10x forward earnings, which is why we find the current valuation multiple just north of 9x as exceedingly attractive,” Barnidge said at the time. “We also believe AIZ has done a good job at better level-setting expectations for ’23 EBITDA growth that sets up a beat and raise story near term as savings from its cost-cutting program along with pricing increase efforts begin to bear more fruit.” Newell Brands also made the list. The Rubbermaid and Paper Mate parent has underperformed in 2023, down about 24% year to date. But Wall Street expects a reprieve ahead, with the average analyst surveyed by LSEG having a price target that indicates an upside of more than 28%. Canaccord Genuity analyst Brian McNamara initiated coverage of the stock at overweight in July, citing an improving landscape for his stance. Still, the average analyst has a hold rating on the stock, according to LSEG. “After a well-telegraphed ugly H1 2023 driven by retailer destocking and a pinched consumer after one-off demand in 2021, we believe better days are ahead with new management at the helm and a reasonable strategy that we believe will reignite modest top-line growth, improve profitability and cash flows, and reduce leverage,” McNamara said. Molson Coors was also among the stocks poised to do well. The stock has outperformed this year as competitor Anheuser-Busch InBev has struggled. Anheuser-Bush’s challenges have been largely tied to conservative ire over its decision to use a transgender influencer to promote Bud Light. TAP BUD,.SPX YTD mountain Molson Coors vs. Anheuser-Busch Inbev and the S & P 500 this year Molson reported a mixed second quarter last month, beating expectations for earnings while missing on revenue. On Monday, the company expanded its partnership with drink maker ZOA Energy as Molson tries to expand beyond beer. The average analyst has a hold rating on the stock, but price targets imply an upside of more than 7% on average. That would mark an extension of the rally seen this year, with shares up more than 23%. And speaking of buying financials, Invesco also made the list. The investment firm’s stock has slid more than 14% in 2023 as the sector was challenged by a banking crisis earlier this year. While the typical analyst has a hold rating, the average price target signals an upside of more than 15% on the horizon, per LSEG. — CNBC’s Michael Bloom contributed to this report
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