Bank of America’s 8 Best Stocks to Buy in Q3

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Here are analysts’ top stocks to buy in the third quarter.

The stock market’s huge run off March 2020 pandemic lows continued in the second quarter, sending the S&P 500 up by 14.4% in the first half to new all-time highs above 4,300. Investors are growing increasingly optimistic that a combination of vaccine rollouts, economic reopenings and pent-up consumer demand will propel stock prices even higher in the second half. Bank of America recently released its quarterly list of top stocks to buy for the next three months. These eight stock picks are high-conviction investment ideas that have bullish catalysts coming sometime in the third quarter.

Affirm Holdings (ticker: AFRM)

Analyst Jason Kupferberg says buy now, pay later company Affirm Holdings’ fiscal fourth-quarter earnings report and initial fiscal 2022 guidance — which are likely coming in early September — will be positive catalysts for the stock. Kupferberg says current consensus analyst estimates for fiscal 2021 and 2022 revenue and gross merchandise value are likely too low given Affirm’s new relationship with Shopify (SHOP) and its positive business momentum outside of Peloton Interactive (PTON). Kupferberg projects 41% revenue growth in fiscal 2022 above consensus estimates of 38% growth. Bank of America has a “buy” rating and a $71 price target for AFRM stock.

CNH Industrial (CNHI)

CNH Industrial is a global farm equipment manufacturer. Analyst Ross Gilardi says CNH has several longer-term bullish catalysts, including a booming farm economy, elevated investment in precision farming, recovering end markets and its recent $2.1 billion buyout of Raven Industries (RAVN). Gilardi says the stock will also experience an earnings multiple expansion once it spins off its IVECO commercial vehicle business in early 2022. Near-term catalysts include a potential earnings beat in late July, strong crop fundamentals and additional details on the IVECO spinoff. Bank of America has a “buy” rating and a $25 price target for CNHI stock.

EPR Properties (EPR)

EPR Properties is a triple-net lease real estate investment trust that specializes in experiential properties. Analyst Joshua Dennerlein says EPR is a compelling value, trading at a deep discount to his estimated net asset value. In the third quarter, Dennerlein says EPR will comply with its debt covenants, which will allow it to reinstate its dividend and resume external growth. If the REIT eventually trades in line with his estimated one-year forward net asset value, Dennerlein says EPR could generate sizable upside for investors. Bank of America has a “buy” rating and a $62 price target for EPR stock.

East West Bancorp (EWBC)

East West Bancorp is a California bank focused on the U.S. and Chinese markets. Analyst Ebrahim Poonawala says the company has among the best risk-reward profiles for investors in the entire banking industry. He says there is upside potential to company guidance of between 6% and 8% loan growth in 2021. Poonawala says East West’s earnings per share are positively correlated to rising short-term interest rates. Rising inflation and Federal Reserve commentary on tapering or rate hikes could be near-term bullish catalysts. Bank of America has a “buy” rating and a $100 price target for EWBC stock.

FedEx Corp. (FDX)

Delivery giant FedEx disappointed the market with its recent earnings report, but analyst Ken Hoexter says FedEx remains a top transportation stock pick. Hoexter says FedEx is undervalued and has multiple long-term tailwinds that should support the company and its stock. He says FedEx’s current valuation reflects an overly cautious view on the potentially negative impact the end of the pandemic could have on shipping volumes. In the third quarter, enterprise contract repricing and growth in higher-margin business-to-business shipments could be bullish catalysts. Bank of America has a “buy” rating and a $372 price target for FDX stock.

First Solar (FSLR)

First Solar is the largest vertically integrated U.S. solar panel manufacturer. Analyst Julien Dumoulin-Smith says First Solar is among the best-positioned solar stocks and is the only viable cadmium telluride thin-film panel supplier. Dumoulin-Smith says channel checks suggest supply chain disruptions will limit production of crystalline silicon panels in the second half of 2021. That disruption will not significantly affect First Solar’s production, but it will raise solar panel prices, boosting margins. Other near-term catalysts include second-quarter earnings and infrastructure bill headlines. Bank of America has a “buy” rating and a $111 price target for FSLR stock.

Lamb Weston Holdings (LW)

Lamb Weston is the leading U.S. frozen potato products producer. Analyst Bryan Spillane says the company is well-positioned to return to pre-pandemic business levels as food service distributors and casual dining restaurants fully rebound. Spillane says Lamb Weston deserves to trade at a premium valuation to its peers due to its superior sales growth and margin expansion opportunities. Spillane says fiscal fourth-quarter earnings will likely remain depressed thanks to lingering pandemic effects. However, third-quarter channel checks on pricing and capacity utilization could be bullish catalysts. Bank of America has a “buy” rating and a $100 price target for LW stock.

Exxon Mobil Corp. (XOM)

WTI crude oil prices recently topped $75 per barrel for the first time since 2018, and analyst Doug Leggate says Exxon Mobil is his top oil and gas stock pick for the third quarter. He says investors underappreciate the portfolio flexibility that Exxon’s exploration and production, refining and chemicals businesses provide. Leggate says Exxon is the oil major that is most likely to rebound in refining margins moving forward, and it could even be positioned to raise its dividend for the first time since 2019. Bank of America has a “buy” rating and a $90 price target for XOM stock.

Best stocks to buy in the third quarter:

— Affirm Holdings (AFRM)

— CNH Industrial (CNHI)

— EPR Properties (EPR)

— East West Bancorp (EWBC)

— FedEx Corp. (FDX)

— First Solar (FSLR)

— Lamb Weston Holdings (LW)

— Exxon Mobil Corp. (XOM)

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