By Barbara Kollmeyer
Here’s one possible all-clear signal. COVID-19 is no longer a “tail risk” for investors, the first time since February 2020, says Bank of America in its latest fund manager survey. A tail risk is an unlikely event that could cause outsize losses or gains.
Scroll down for that chart.
Meanwhile, the Federal Reserve’s two-day policy meeting begins on Tuesday, and investors will be on the lookout for any hawkish signals that could take some steam out of stocks. The premarket is showing some mixed action after some disappointment over retail sales.
But many remain stuck into the idea of a post-pandemic boom, at least in the U.S. as vaccinations roll out.
That has kept the records coming for the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.06% and S&P 500 /zigman2/quotes/210599714/realtime SPX +1.49% and those stocks geared toward a recovery. Our call of the day comes from strategists at Bank of America, who offer up 17 stocks to buy for the three R’s they see coming — recovery, reflation and rerating.
Strategists Jill Carey, Savita Subramanian and Ohsung Kwon say the economy has reached the mid-cycle phase, where inflation typically is strongest. In prior such phases, excluding the technology bubble, small-caps have outperformed larger ones, and value has beaten growth.
The Bank of America team says there are two reasons to like those stocks: many of the companies they highlight are still not expensive, and active funds aren’t positioning for that rising inflation, with heavier exposure to mega than smaller caps.
Onto the stocks (nearly half are small-to-midcap companies)…
Alcoa /zigman2/quotes/200686102/composite AA +1.46% — BofA has a share price target $37 for the miner. Aluminum prices could go either way, but global demand growth is a plus for Alcoa.
Axalta Coating Systems /zigman2/quotes/204422049/composite AXTA -0.31% — Share price target £37 for the global coatings group. The pace of automobile recovery will be key and a stronger dollar and lower raw material costs could be a boost.
Broadcom /zigman2/quotes/200646538/composite AVGO +2.56% — Share price target $550. Risks for the semiconductor company include sensitivity to U.S.-China trade relations and competition in networking, smartphone and other markets.
Hess /zigman2/quotes/203832174/composite HES +6.13% — Share price target $95. Among the energy company’s risks are oil and gas prices, as well as slowing developments in drilling.
Marriott International /zigman2/quotes/200170042/composite MAR +2.89% — Share price objective $150. Economic weakness and worse-than-expected spending by businesses and consumers are among the risks for the hospitality company.
Walt Disney /zigman2/quotes/203410047/composite DIS -2.60% — $223 price objective for the entertainment giant that has “best in class assets.” Downside risks include slowing ESPN growth from people deciding not to keep a cable television subscription, weaker consumer confidence, and low theme park attendance. Also watch out for potential film flops.
As for the rest, they like CNH Industrial /zigman2/quotes/205520883/composite CNHI +2.90% , Comcast /zigman2/quotes/209472081/composite CMCSA +2.25% , Emerson Electric /zigman2/quotes/200181610/composite EMR +1.19% , Herc Holdings /zigman2/quotes/209084505/composite HRI +4.80% , Knight-Swift Transportation /zigman2/quotes/206974312/composite KNX -0.14% , Occidental Petroleum /zigman2/quotes/207018272/composite OXY +5.86% , Parker Hannifin /zigman2/quotes/202924304/composite PH +1.78% , Principal Financial /zigman2/quotes/201030797/composite PFG +2.36% , Robert Half International /zigman2/quotes/209666445/composite RHI +1.70% , Union Pacific /zigman2/quotes/209717171/composite UNP +1.19% and World Fuel Services /zigman2/quotes/201809068/composite INT +5.72% .