BofA Securities Best Small and Midcap Picks for the Rest of 2020

Investing

Published: July 10, 2020 7:50 am

Last Updated: July 10, 2020 9:24 am

The story for investors this year has been the incredible run of the Nasdaq, which has put in all-time highs after bottoming in March with the rest of the market. Conversely, the Russell 2000, which features the index of the smallest 2,000 stocks, has struggled. After peaking in June, the index has rolled over and traded sideways to down over the past month.

The advantage of owning stocks that are smaller in market capitalization is that many of them have less European and China exposure, and best of all for investors, they are trading at levels that are far more reasonably priced than the high price-to-earnings momentum group.

A new BofA Securities report includes the firm’s best small and midcap stock picks for the rest of 2020. The report noted this when discussing methodology:

For this report, we focus on Buy-rated stocks of at least $1 billion in market cap (and liquidity no less than $20 million per day) that are less than $15 billion in market cap or fall into one of the major small/mid cap US benchmarks (plus one idea from our MLPs team), which our contributing fundamental research teams consider their best ideas within their small and midcap coverage (spanning >800 US stocks).

Some 27 stocks made the cut, so we screened the list for the five best-known companies that offer the best upside for investors to the BofA Securities price target and perhaps can move more into favor as economic and health conditions around the country improve. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Allegiant Travel

This low-cost carrier flies to many cities, but none of those destinations is in China. Allegiant Travel Co. (NASDAQ: ALGT) has a unique business strategy: flying where other airlines do not. It connects 136 city pairs and typically flies each leisure route only a few times a week, using older planes with low capital costs. An early unbundler, the company generates more fees per passenger than any U.S. airline. Its largest market is Las Vegas, followed by Orlando and Phoenix.

The company announced earlier this year the largest service expansion in its history, which includes 44 new nonstop routes, including 14 routes to three new cities: Chicago, Boston and Houston. This major addition to service is driven by Allegiant’s goal of connecting leisure travelers in underserved cities to popular destinations around the country. Most of the 44 new routes are non-competitive, with no other airline providing service between those airports.

The BofA Securities price target for the shares is $140, while the consensus target across Wall Street is just $112.78. Allegiant Travel stock was last seen trading at $101.74, down almost 8% on Thursday.

CyrusOne

This is a top pick among the data center stocks. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.

Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like CyrusOne. The company trades at numerous lower multiples than their bigger competition, and top analysts feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth.

The company also has exhibited faster deployment times, rapid new market expansion and low churn among customers, all bullish reasons for buying the stock. The analyst recently raised the price target and reiterated the Buy rating.

Unitholders receive a 2.60% distribution. BofA Securities lifted its price objective to $85 from $75. The consensus target price is $78.19, and CyrusOne stock closed Thursday’s trading at $76.84.