The U.S. economy is in recovery mode, according to Bank of America equity and quantitative strategists led by Savita Subramanian.
“Our U.S. Regime Indicator improved for the second consecutive month in August, officially entering a recovery phase,” they wrote in a report.
Five pieces of the indicator improved, including inflation, B of A’s GDP forecast and 10-year Treasury yields. Three pieces weakened, including the index of leading economic indicators.
So what are good stocks to own during a recovery?
B of A created a list of the top 10% of stocks in the S&P 500 based on value, risk, low quality and small size. Here are 10 well-known companies that made the cut.
- American Airlines AAL
- Bath & Body Works BBWI
- Ford Motor F
- Fox FOXA
- Hewlett Packard Enterprise HPE
- Marathon Oil MRO
- Molson Coors Beverage TAP
- MGM Resorts MGM
- Ralph Lauren RL
- Whirlpool WHR
Morningstar Assessments
Bath & Body Works
Morningstar moat (durable competitive advantage) rating: narrow. Morningstar fair value estimate: $78. Wednesday price quote: $36.50.
“We believe Bath & Body Works has carved out a solid competitive edge in the sizable addressable markets in which it operates,” wrote Morningstar analyst Jaime Katz.
“The company’s strong brand is supported by its leadership position across the bath and shower and candle air freshener industries in recent years. That has been bolstered by BBW’s quick response to consumer trends.”
Ford Motor
Morningstar moat rating: none. Morningstar fair value estimate: $20. Wednesday price quote: $12.85.
“Ford is turning itself around by focusing on light-truck models in the U.S., which we think is the right move, since light trucks are nearly 80% of U.S. industry new light-vehicle sales,” wrote Morningstar analyst David Whiston.
“Ford's challenge is to increase share profitably, while elevating Lincoln into a global luxury brand.” Meanwhile, it will take years for investments in mobility and electrification to bear fruit, he said.
Fox
Morningstar moat rating: narrow. Morningstar fair value estimate: $43. Wednesday price quote: $31.85
“Fox posted a strong end to fiscal 2023, as revenue met and adjusted Ebitda [earnings before interest, taxes depreciation and amortization] beat FactSet consensus projections,” wrote Morningstar analyst Neil Macker.
“The broadcast segment posted impressive affiliate-fee growth once again, as Fox continues to succeed in swimming against the cord-cutting wave.”
To be sure, “the direct response ad market at Fox News remains plagued by elevated supply across the market,” Macker said.
Ralph Lauren
Morningstar moat rating: narrow. Morningstar fair value estimate: $131. Wednesday price quote: $115.55.
“Ralph Lauren's restructuring over the past few years puts it on solid footing as it navigates macroeconomic challenges,” wrote Morningstar analyst David Swartz.
“In response to poor inventory control and heavy discounting in years past, Ralph Lauren has closed more than 75 stores, reduced exposure to U.S. department store and off-price channels, and cut product lead times.”
Get exclusive access to portfolio managers and their proven investing strategies with Real Money Pro. Get started now.
