From multi-week losing streaks to bear market rallies, it’s been a brisk ride to the markets this year as investors weigh the risks of more aggressive monetary policy and heightened warnings of a recession. Major US indices rebounded significantly in Tuesday’s trading, reversing last week’s declines, but remaining in the deep red this year. The S&P 500 and Nasdaq Composite are down more than 20% and 24%, respectively, this year, putting them in bear market territory. The Dow Jones Industrial Average also fell 16.6% in the same period. While investors may focus on the bigger, more recognizable names in the market, Bank of America believes that some small and mid-cap stocks present an opportunity for investors. The bank’s strategic analysts, led by Jill Carey Hall, said June 21 that Bank of America’s list of 26 “best small and medium business ideas” for 2022 has an average potential rise of 60% over the next 12 months. The bank noted that stocks with defensible margins and pricing power have been rewarded in an environment of high interest rates and high inflation. Stocks well positioned to thrive in such an environment include food delivery platform DoorDash, which the bank says is “resilient to raw commodities and food price inflation.” Analysts said that price pressures could be compounding DoorDash’s margins. They expect margins to improve in 2023. The bank has a target price of $90 per share, which represents a potential upside of 42.9% to the stock’s closing price of approximately $63 on June 21. as ‘least exposed’ to labor cost pressures. The bank also expects the stock to see further upside from future deals as it continues to post improved free cash flow. The company’s shares closed at about $26 on June 21, indicating a potential 46.2% higher than the bank’s $38 target price. California-based Air Lease is one of the bank’s top picks. Bank of America expects the company to benefit from a rebound in commercial aviation, with the worst outbreak of the pandemic now “in the past”. Analysts said the company would also benefit from higher interest rates due to its ability to pass on a higher cost of debt while seeking higher premiums from lower investment grade tenants. The bank’s target price is $55 per share — an implied rise of 77.4% from its closing price of about $31 on Tuesday. Bank of America’s list of recession-resistant names also includes several stocks that it believes are well-positioned to weather a recession. Technology consulting firm Gartner is one such stock. The bank described it as a “high-quality, defensive” name with increased sales, margins and profits. The company has “strong demand” for its services, while its core research sales are relatively “slack-resistant,” according to the bank. The bank’s target price of $340 indicates a potential upside of 45.9% to the stock’s closing price of approximately $233 on June 21. The bank believes that consumers will face increased financial pressure as government support programs begin and inflation eases. “We expect this to reduce commerce to primary, as we found prices to be 36% lower on average than Walmart and Amazon,” Hall said. The bank has set a target price of $75 per share, which represents a potential 25% higher than the closing price of about $60 on Tuesday. Electronics manufacturer Jabil is another Bank of America favorite. The bank says the company is tapping into secular growth end markets which are “generally evidence of stagnation”. The company considers Apple an “important customer”. The bank noted that Jubail was able to increase revenues and margins despite supply chain challenges and inflation, while passing the increased cost to customers. Bank of America’s target price of $82 on the stock indicates a potential upside of 51.9% to the stock’s closing price of approximately $54 on June 21.
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