With earnings for the second quarter on deck, and the third quarter of 2020 officially underway, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients. The market still showing volatility not seen in years, so it makes sense to examine the lists and make some changes, as the rest of the year could be even more volatile, as the political and geopolitical cycle could prove to be very explosive components.
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In a dramatic move, the likes of which we have rarely seen, the research team at BofA Securities has made huge across the board changes to the firm’s US 1 list of top stocks to buy. Four companies were removed and a stunning 14 new companies are added. The analysts also made changes to the weighting methodology and the committee process for the US 1 list.
The team noted this in the report:
Going forward, the list will be weighted based on market capitalization, and will allocate 2% for stocks with <$100 billion market cap, 4% for stocks with $100-$400 billion market cap, and 6% for any stocks with greater than $400 billion market cap. To the extent that any security selection causes the list allocation to exceed or fall short of 100%, this excess/shortfall will be allocated equally across all stocks in the list.
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Many of the stock added to the list are Wall Street favorites, so we screened the new additions for those that should fare well in the second half of 2020. We also looked for stocks that can hold up if we trade lower, as the huge “melt-up” rally of the March lows may see some consolidation. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Here are five of the new additions to the BofA Securities US 1 list. All are rated Buy.
Activision Blizzard
This remains a top gaming pick on Wall Street. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.
The company develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers. Its legacy franchise Call of Duty game continues to be hugely popular.
The analysts are also positive on the shares because of the upcoming title “Crash Bandicoot 4: It’s About Time” and another smaller game. Given the continued pandemic issues, gaming stocks remain a solid idea for the second half. In addition, Activision’s coming slate of games, including “Overwatch 2” and “Diablo 4,” positions the game maker to take advantage of the new consoles from Sony and Microsoft.
Investors receive just a 0.55% dividend. BofA Securities has an $80 price objective on the shares, while the Wall Street consensus target price is $79.06. Activision Blizzard stock was trading early Wednesday at $76.50.
Charter Communications
This top cable giant has been expanding services and product offerings for clients. Charter Communications Inc. (NASDAQ: CHTR) is a leading broadband communications company and the second-largest cable operator in the United States. It provides a full range of advanced broadband services, including Spectrum TV video entertainment programming, Spectrum Internet access and Spectrum Voice.
Spectrum Business similarly provides scalable, tailored and cost-effective broadband communications solutions to business organizations, such as business-to-business internet access, data networking, business telephone, video and music entertainment services and wireless backhaul.
The company made a huge investment in Time Warner Cable, and Charter is tracking well on its integration, which will enable all of its product offerings, pricing, packaging and service operations to be universal across its footprint.
The BofA Securities price objective is $590, and the lower consensus target is $566.97. Charter Communications stock traded early Wednesday at $519.70.
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Constellation Brands
If there is any company with products that stay in style, it is this one, which only has 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer.
The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.
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The company made a gigantic $3.8 billion investment in cannabis company Canopy Growth last year to increase its holdings in the company. The record investment reflects a world in which marijuana has become ubiquitous as its counterculture stigma fades.
Investors receive a 1.63% dividend. The lofty $215 BofA Securities price target is well above the $188.89 consensus target. Constellation Brands stock traded at $189.20 on Wednesday.
Equinix
This is one of the larger capitalization companies in the data center industry. Equinix Inc. (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.
The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.
Equinix stock investors are paid a 1.51% distribution. BofA Securities held its $750 target price. The consensus price objective is $733.53, and shares were trading at $712.90.
Splunk
This stock remains a top buy on Wall Street. Splunk Inc. (NASDAQ: SPLK) provides a software platform for collecting, storing, indexing, searching and analyzing machine-generated data, such as log files and configuration files, which are prevalent in every type of IT system, device and application.
Splunk technology is potentially applicable and disruptive in several market segments, including IT operations, security and compliance, and business intelligence. These market segments are collectively worth $28 billion today.
Jefferies notes that the company offers the de facto standard for security information and event management solutions. It also offers orchestration solutions for security operations, a fast emerging category of products.
BofA Securities has set a $249 target price. The consensus target is down at $182.22, and Splunk stock was trading at $200.25.
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Here are the other stocks that are added to the US 1 list: Arch Capital Group Ltd. (NASDAQ: ACGL), Citigroup Inc. (NYSE: C), Hill-Rom Holdings Inc. (NYSE: HRC), Hilton Worldwide Holdings Inc. (NYSE: HLT), Immunomedics Inc. (NASDAQ: IMMU), L Brands Inc. (NYSE: LB), Netflix Inc. (NASDAQ: NFLX | NFLX Price Prediction), Qualcomm Inc. (NASDAQ: QCOM) and Union Pacific Corp. (NYSE: UNP).
Given the huge market moves this year, it may be wise to buy partial positions and see if we don’t indeed see a test of the lows in March, or at least a sizable pullback. That noted, all these companies are great additions to long-term growth portfolios.
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