Here are the top 5 ‘best in class’ stocks coming out of earnings, Bank of America says
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Analysts at Bank of America unveiled a slew of stocks this week that they say are firing on all cylinders as earnings season wraps up. Of the 407 companies in the S & P 500 that have reported earnings to date, nearly 81% reported above analyst expectations, according to FactSet. CNBC Pro combed through top Wall Street research to find the must-own stocks coming out of earnings. They include General Dynamics , Ford, SLB , Nextracker and KLA Corporation . SLB The oilfield services company is going full throttle, analyst Saurabh Pant said after SLB’s recent earnings report. Geopolitics and energy uncertainty are playing right into the company’s strength, according to Pant. The “current cycle is to SLB’s advantages in technology & international,” he wrote. As energy producers rush to maximize production, Pant said SLB equipment will help drillers get premium results from their operations. In addition, the company’s fundamentals are “arguably [the] best since the 2008 financial crisis,” he said. “SLB is by far best positioned to benefit from our expectation of higher pricing and margins in [international] markets over 2024-25, in our view,” Pant said. Shares of the company are up 6.4% in 2023, with SLB remaining a top pick at the firm. “SLB looks best positioned for strong earnings growth and multiple expansion with strengthening [free cash flow] in 2024-25,” Pant wrote. Nextracker The solar solutions company is a “a bright spot in renewables,” according to analyst Julien Dumoulin-Smith. Nextracker is coming off of a fiscal second-quarter report that smashed analysts’ expectations, and the company raised its earnings guidance for the full year. Nextracker only debuted on the public markets in February, but the company has been looking strong since then. “Three earnings post IPO comes with three sequential beat and raise events, and we believe there is room for several more,” Dumoulin-Smith said. In addition, Inflation Reduction Act benefits haven’t even begun to take effect yet, the analyst said. The legislation includes an array of green tax incentives. “NXT’s impressive 2Q-24 execution includes its robust gross and EBITDA margins, and mgmt. comments suggest these raised levels are durable,” the analyst wrote. Meanwhile, even as other solar companies are showing signs of struggling, Dumoulin-Smith said Nextracker “is firing on all cylinders across the globe.” “We continue to see NXT as a market leader both in technology and share, and a best-in-class way to participate in a relatively low risk offensive story in 2023 offering compelling return from current levels,” he said. Shares are up nearly 3% over the past month. KLA Corporation “Resilient growth, best in class cash flow generation, reiterate Buy,” analyst Vivek Arya said in a recent note on KLA Corp. Shares of the semiconductor assembly solutions company are up 32% this year, but the stock has plenty of room to run, the firm said. Arya reiterated his buy rating on KLA after it reported solid fiscal first-quarter earnings with beats on the top and bottom lines in late October. KLA’s wide array of products are used by a majority of semiconductor companies, which keeps demand robust, the analyst said. “The necessity for its systems has made KLAC’s business less cyclical and more profitable that its peers, resulting in more stable FCF and shareholder returns,” he wrote. Margins should remain well above those of the company’s peers, Arya added. “We believe KLAC’s importance as a key enabler of new manufacturing technologies is underappreciated as it provides the equipment needed to inspect/monitor chips for defects,” he said. SLB – buy rating “Current cycle is to SLB’s advantages in technology & INTL. … SLB fundamentals arguably best since 2008 financial crisis. …. SLB is by far best positioned to benefit from our expectation of higher pricing and margins in INTL markets over 2024-25, in our view. …. SLB looks best positioned for strong earnings growth and multiple expansion with strengthening FCF in 2024-25.” KLA Corporation – buy rating Resilient growth, best in class cash flow generation, reiterate Buy. … The necessity for its systems has made KLAC’s business less cyclical and more profitable that its peers, resulting in more stable FCF and shareholder returns. … We believe KLAC’s importance as a key enabler of new manufacturing technologies is underappreciated as it provides the equipment needed to inspect/monitor chips for defects.” General Dynamics – buy rating “We see GD as the best defense stock in this threat environment given its exposure to Indo-Pacific and rising EMEA tensions. … The demand cadence over the last three years confirms Gulfstream’s status as the premier aircraft manufacturer in the world. We reiterate our Buy as exposure to land and sea priorities + persistent backlog at Aero support revenues through the out yrs.” Ford – buy rating “In our view, the company has made significant progress executing on its One Ford plan and delivering best in class vehicles. … Our Buy rating on Ford is predicated on our expectation for a micro earnings inflection at the company, driven by the confluence of a favorable product cycle in the all-important US/NA market and benefits from its Global Redesign restructuring, in addition to the ongoing macro recovery underway in the global automotive cycle. Nextracker – buy rating Three earnings post IPO comes with three sequential beat & raise events & we believe there is room for several more. … We continue to see NXT as a market leader both in tech & share & a best-in-class way to participate in a relatively low risk offensive story in 2023 offering compelling return from current levels. … Although individual project delays are happening across its pipeline, NXT is firing on all cylinders across globe. … NXT’s impressive 2Q-24 execution includes its robust gross & EBITDA margins & mgmt. comments suggest these raised levels are durable.
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