The second half of 2018 is officially underway after a volatile first half of the year for stocks. Overall, the U.S. stock market has been relatively solid so far this year, with the Standard & Poors 500 index up about 2 percent year-to-date. However, gains have been mostly concentrated in the technology and consumer discretionary sectors, with most other sectors trading flat or down on the year. In a mixed market, stock selection is critical. The Bank of America analyst team recently selected the following eight U.S. stocks as its top “buy” ideas for the third quarter.
Analyst Jason Gerberry[WD] says the U.S. pharmaceutical industry will be a stock-pickers market in the second half of 2018, and Allergan (AGN) has the best combination of value and near-term catalysts in the group. Gerberry says Allergan stock is “meaningfully undervalued,” but a new group of activist investors (Appaloosa, Senator Investor Group and Carl Icahn) will likely push aggressively to unlock that value in coming months. In addition, Allergan has multiple third-quarter study updates coming for ubrogepant and abicipar. Bank of America has a “buy” rating and $213 price target for AGN stock.
2. DXC Technology
Analyst Jason Kupferberg[WD] says DXC Technology (DXC) stock is currently trading at about 10 times consensus 2019 earnings per share estimates, a steep discount to its peer group’s earnings multiple of about 17. While DXC’s revenue growth and operating margins currently lag those of its competitors, Kupferberg says DXC’s increasing focus on its digital business and cost synergies associated with its HPE merger will help boost both metrics. He says the next potential catalyst for the stock is its analyst day event in September. Bank of America has a “buy” rating and $103 target for DXC stock.
Analyst Anna Kaminskaya[WD] says Fluor Corporation (FLR) is the best way for investors to play the boom in energy and mining spending that will be playing out over the next several years. Kaminskaya says Fluor’s backlog reached an inflection point in the second quarter of 2018, and the company is on the verge of booking two major $3 billion-dollar deals in the third quarter with BHP and Anglo American. Kaminskaya says the deals will trigger earnings per share upgrades and earnings multiple expansion for FLR stock. Bank of America has a “buy” rating and $58 target for FLR stock.
Analyst Andrew Obin[WD] says Honeywell (HON) stock has been plagued by subpar revenue growth over the past few years, but Aerospace and Sensing & Productivity Solutions revenue has shown signs of life in the most recent quarter. Obin says if these trends continue, Honeywell’s growth could return to the top 25 percent of its peer group through 2019. EPS revisions and earnings multiple expansion could create meaningful upside for HON stock as well. Obin says the next positive catalyst will likely be second-quarter earnings on July 20. Bank of America has…
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