Bank of America's top stock picks for the third quarter

Bank of America has released its most recent short-term stock recommendations as the third quarter of trading for the year commences. The S & P 500 has seen an increase of approximately 16% this year, and the firm's equity analysts continue to predict a summer rally that could negatively impact investors who have been preparing for unfavorable outcomes. "The BofA Macro perspective has developed over the previous quarter," strategist Anthony Cassamassino stated in a note on Monday. "Our U.S. equity strategist, Savita Subramanian, recently announced the end of the bear market. Although Michael Hartnett maintains his overall pessimistic outlook, he believes the pain trade will increase in the short term. Our U.S. Economist, Michael Gapen, has delayed his recession prediction and anticipates a less severe downturn beginning next year. Even the technicals suggest SPX 4900-5000, as per Stephen Suttmeier."

Bank of America has compiled its top 10 recommendations for the upcoming quarter, all of which have a buy rating, according to Cassamassino. Here are half of those suggestions: The memo identifies Bath & Body Works, a retailer of candles and personal items, as a "steady grower with a reasonable valuation." This year, it has increased its market share in all three of its sectors (fragrance, body, soaps), while its rivals have experienced decreases. The bank also anticipates several growth catalysts this year and enhancements in merchandise margins as cost inflation and shipping costs stabilize.

In the tech sector, Bank of America identifies software firm Datadog. It notes that the demand for Datadog's developer security operations platform is "robust" and the company is poised to gain from AI-driven cloud tasks. Another stock on the list is potato products manufacturer Lamb Weston. Bank of America highlights that the demand from restaurants, which constitutes approximately 85% of the company's sales, remained strong from March to May despite price hikes across foodservice and retail channels implemented in May. The bank's analysts anticipate Lamb Weston to exceed and uplift earnings forecasts when it discloses financial outcomes on July 25.

Disney, which has seen a 4% increase in 2023 and is trailing the S & P 500, is spotlighted by Bank of America for its sustained strong demand at its amusement parks and growing emphasis on content excellence and expenditure. Its stock has a $135 price target, which is over 50% higher than its closing price on Friday.

Wells Fargo presents "one of the most appealing risk/reward ratios in the large-cap banks due to its potential for self-improvement (capital return, efficiency), a robust deposit franchise, and credit defensibility," as per the note. The successful results of the regulatory stress tests conducted last week, coupled with the bank's surplus capital positioning, should also "enable the bank to return capital (through buybacks, a 17% dividend increase) while being more prepared to accommodate shifting regulatory capital requirements (a proposal from the Fed is anticipated in mid-July)."