Second-Quarter Stock Picks From Bank Of America

A new list of short-term investment ideas has been released by Bank of America for investors looking to gain clarity amid the continuing volatility in the market with the start of the second quarter.

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A note was sent to clients earlier this week outlining a list of high-conviction stock recommendations that the firm believes investors should consider. During the first quarter of this year, investors moved a record $508 billion into a cash period according to chief investment strategist Michael Hartnett's note.

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As a result of the severe turmoil caused by the series of banking crises - including the regulators' shutdown of Silicon Valley Bank and Signature Bank, and the purchase of Credit Suisse by UBS - as well as persistent fears that interest rates would continue to rise and that a recession would be deeper than anticipated in the first quarter of this year - stocks rose in spite.

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S&P 500 had a solid start to the year, increasing by 7%. The Dow Jones Industrial Average gained 0.4% and Nasdaq Composite gained 16.8% for the quarter. As well as that, Nasdaq achieved its largest quarterly gains since the second quarter of 2020, when it increased by 30.6%.

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The risks that have been shrugged off by the market are still there and could add to the volatility in the second quarter of the year. Below are five stocks that Bank of America highlights as having the most potential to add value to your portfolio.

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• FedEx Corp.

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• Lamb Weston Holdings

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• Netflix

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• Progressive Corp

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• UnitedHealth Group

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UnitedHealth was rated as a key short-term pick by Bank of America analysts. They said the company's scale, diversity, and exposure to the growing Medicare Advantage market, as well as its subsidiary health care provider Optum, make it well positioned to thrive during periods of macroeconomic uncertainty. As of this year, the bank predicts two-thirds of its revenue growth to be derived from Medicare Advantage plans.

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Considering that UnitedHealth had only shed 5% so far this year, the bank assigned a $650 price target to the stock. That suggests the stock could gain more than 31% in the next few days. However, the stock has been up more than 5% in April thus far.

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It has been noted that UNH is well-positioned to grow its earnings per share by double digits, even in severely challenging economic times, as a result of its scale, which gives it unique opportunities to achieve cost and operational synergies across its insurance, technology, and pharmacy platforms, according to research analyst Kevin Fischbeck.

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Lamb Weston is another stock the bank believes will do well in the months to come, following a strong performance last year. The stock has risen 16% so far this year, following a 40% rise in 2022.

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As a result of the bank's price target of $115 per share in the next 12 months, the stock is expected to rise an additional 11% from Tuesday's close of $103.58 to $115 per share in the next 12 months.

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After a slower December, restaurant demand/traffic (85% of LW’s sales) grew in January/February, leading to an increase in sales for BofA/consensus, according to analyst Peter Galbo. Further, as LW continues to display best-in-class pricing power across [consumer packaged goods] with minimal elasticities and plans to implement an additional price increase throughout the coming spring and summer, we will be able to report an increase in pricing.

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In addition, Galbo expects the company's fiscal third-quarter earnings to exceed consensus expectations, due Thursday, with organic sales for the quarter increasing by 21.6%, which is in line with expectations.

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As part of its buy list, Bank of America also owns FedEx, Lowe's, and Netflix, among others.

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CarMax isn't as attractive to bank analysts as it was a year ago

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It is estimated that Bank of America expects CarMax shares to decline 37% to the $40 price target it has set for the company.

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Throughout the year, CarMax Auto Finance (CAF) has seen its originations sluggish, interest rates rise, spreads widen, and loan losses normalize, according to research analyst John Murphy in a note published by the company. We do not perceive any extreme risk for CAF, and we do not believe it will implode. However, we anticipate earnings to be adversely affected as the cost of funds continues to rise relative to the rate charged to customers.

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