Investing

BofA Securities Out with Top Small and MidCap Stock Picks For 2nd Half

Incredibly, we are just a week away from the end of the quarter and the start of the second half of 2021. Most across Wall Street would agree that by any measure this has been one of the most bizarre trading years in market history — the meme stock craze, the incredible surge of retail trading volume that was associated with the Reddit/Wall Street Bets crowd, and the unprecedented pressure put on hedge funds with big short positions, and so much more.

One thing is certain, the top firms on Wall Street we cover here are starting to pivot towards new ideas, especially those that will benefit from the continued reopening of the economy. In a new research report from Jill Hall, the outstanding equity and quantitative analyst at BofA Securities who covers the small and midcap arena, she and her team have released a list of the top stocks the firm’s analysts cover that look like solid second-half winners. They said this in the report, when discussing the parameters for stock selection:

As investors focus on opportunities for the second half, we publish our analysts’ best ideas within the small/mid (SMID) cap size segment of the US equity market. We focus on Buy-rated stocks that our contributing fundamental research teams consider their best ideas within their SMID cap coverage (spanning >800 US stocks). To be considered, stocks must have a market cap of $1-15 billion or belong to one of the major small/mid cap US indices, with liquidity of at least ~$20 million/day.

A total of 31 stocks made the cut with an average implied return of 28% to their 12-month price objectives. We selected five that have intriguing upside potential and a degree of safety given the current lofty valuations. Remember that no single analyst call should ever be used as a basis to buy or sell a stock.

Advance Auto Parts

This top stock has solid upside potential and is in a very strong sector. Advance Auto Parts Inc. (NYSE: AAP) provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks.

The company operates stores under the Advance Auto Parts, Autopart International, and Carquest brands as well as branches under the Worldpac name. As of Jan. 2, 2021, it operated 4,806 stores and 170 branches in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada and served 1,277 independently owned Carquest branded stores in Mexico, Grand Cayman, the Bahamas, Turks and Caicos, and the British Virgin Islands.

While auto parts retailer stocks have done relatively well over the past year, many across Wall Street, including BofA Securities, feel that there’s still more room for the rally to continue. In addition, Advance Auto and other retail auto parts companies have the ability to pass on higher costs to consumers given the non discretionary nature of auto parts. That’s a good place to be when inflation is moving higher.

Shareholders are paid a reasonable 2.05% dividend. BofA Securities has a $223 price target, while the Wall Street consensus is set at $217.75. The last Tuesday trade was reported at $200.04.

Alaska Air Group

This company has a big west coast exposure and continues to rank high on Wall Street as consumers return to the sky for business and holiday travel. Alaska Air Group, Inc. (NYSE: ALK) is the parent company of Alaska Airlines. The company serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Despite recent challenges by other carriers for superiority in the Northwest, the company has strong customer loyalty, which has contributed to outstanding earnings and revenue growth.

Alaska Air Group focuses on point-to-point traffic in the Pacific Northwest. However, about 20% of its traffic connects over its hubs in Anchorage, Alaska; Seattle; and to a lesser extent Portland, Oregon. By developing transcontinental markets, and more recently adding Hawaii, the company has transformed from a largely north-south directional carrier to one with a much more balanced network.

The BofA Securities price target for the company is $80. That is versus a slightly higher Wall Street consensus target of $81.71. Alaska Air Group was last traded on Tuesday at $64.21.

Crown Holdings

This packaging product leader is a great idea for conservative investors and may have solid upside potential. Crown Holdings Inc. (NYSE: CCK) designs, manufactures, and sells packaging products for consumer goods in the Americas, Europe, and the Asia Pacific.

The company offers aluminum beverage cans and ends and other packaging products to beverage and beer companies; food cans and ends, including two-and three-piece cans in various shapes and sizes for food marketers; and aerosol cans and ends for manufacturers of personal care, food, household, and industrial products. It also provides metal and composite closures, and capping systems and services, as well as various specialty containers comprising lid and closure variations.

Crown Holdings has visibility into continued solid volume growth in North America through at least 2023 (based on contractual customer commitments) that should at least match the expected 15% increase in industry capacity in the next 18 months while also potentially opening up tactical pricing opportunities.

Shareholders are paid a small 0.80% dividend. The BofA Securities price target is $125. That is versus a higher Wall Street consensus target of $129.62, and Tuesday’s closing price of $100.541.

Harley-Davidson

With consumers that have money to spend and the country open again, the venerable motorcycle maker is a great bet for the rest of the year. Harley-Davidson, Inc. (NYSE: HOG) manufactures and sells custom, cruiser, and touring motorcycles. The company operates in two segments — motorcycles and related products and financial services.

The motorcycles and related products segment designs, manufactures, and sells Harley-Davidson motorcycles, including cruiser, touring, standard, sportbike, and dual models, as well as motorcycle parts, accessories, general merchandise, and related services. This segment sells its products to retail customers through a network of independent dealers as well as e-commerce channels in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia-Pacific.

The financial services segment provides wholesale financing services, such as floor plan and open account financing of motorcycles, and parts and accessories; and retail financing services, including installment lending for the purchase of new and used Harley-Davidson motorcycles, as well as point-of-sale protection products comprising motorcycle insurance, extended service contracts, and motorcycle maintenance protection. This segment also licenses third-party financial institutions that issue credit cards bearing the Harley-Davidson brand.

Shareholders are paid a reasonable 1.30% dividend. The BofA Securities analyst has set a $70 price target, and that compares with the much lower $51.70 consensus price objective across Wall Street. The final trade on Tuesday hit the tape at $46.04.

M&T Bank Corp

Rising interest rates are great for banks, and this company is a great regional idea for investors looking to add a financial to their portfolios. M&T Bank Corp. (NYSE: MTB) operates as the holding company for Manufacturers and Traders Trust Company and Wilmington Trust, National Association that provides banking services. The company’s business banking segment offers deposits, business loans and leases, and credit cards as well as cash management, payroll, and letters of credit services to small businesses and professionals.

The commercial banking segment provides credit and banking services for middle-market and large commercial customers. The company’s commercial real estate segment offers multifamily residential and commercial real estate credit, and deposit services. Its discretionary portfolio segment provides deposits; securities, residential real estate loans, and other assets; and short and long-term borrowed funds, as well as foreign exchange services.

The company’s residential mortgage banking segment offers residential real estate loans for consumers and sells those loans in the secondary market and purchases servicing rights to loans originated by other entities. Its retail banking segment offers demand, savings, and time accounts; consumer installment loans, automobile and recreational finance loans, home equity loans and lines of credit, and credit cards; mutual funds and annuities; and other services. The company also provides trust and wealth management; fiduciary and custodial; investment management; and insurance agency services.

Investors are paid a solid 2.97% dividend. BofA Securities has a $190 price target, which is lower than the $167.96 consensus target. Tuesday’s last trade was $147.13.

The BofA Team points out in the research report that small and midcap companies are more exposed to the reopening theme due to the domestic pent-up consumer demand. With that noted, these five are stellar ideas for growth investors looking to reset portfolios with an eye for the rest of 2021 and beyond.