Bank of America says these stocks have the most 'potential upside' this holiday season

Published Sat, Dec 10 20228:24 AM EST

Analysts at Bank of America named five stocks this week that they say every investor must own heading into 2023. The firm said these companies have solid momentum and may prove defensive especially if macro conditions deteriorate. CNBC Pro combed through Bank of America research looking for stocks with major upside potential. They include Kroger, Solo Brands, Netflix , KKR and Insmed . Netflix Shares of Netflix are down 46.8% this year, but analyst Jessica Reif Ehrlich is standing by the streaming giant. Bank of America recently resumed coverage of Netflix with a buy rating, saying that it has confidence that the company has the right strategy going forward. "Despite slower [subscriber] growth, we believe efforts to improve monetization via a value-oriented ad tier and significant conversion of password sharers has the potential to drive operating/financial upside," she said. Reif Ehrlich acknowledged Netflix has a whole host of short-term issues it's facing including "inventory glut, competition and a softening macro backdrop." Still, the stock is too attractive to ignore at current levels, she said. "We view NFLX's risk/reward favorably as our bull case upside is 2.0x the bear case of share losses/slowing growth," she added. The firm does say Netflix has one other underappreciated lever it can pull. There's still a long runway for subscriber growth outside of the U.S. that's simply not getting enough investor attention, the firm wrote. Netflix is "still the streaming leader," she concluded. Kroger Kroger shares have gained nearly 2.6% this year, but the stock has a lot more room to run, according to analyst Robert Ohmes. He said the grocer is nicely positioned heading into 2023, with "sales & EPS upside from high inflation" expected to continue well into the fiscal fourth quarter of 2023 and fiscal 2024. "We expect broad-based inflation to increasingly drive consumers to grocers offering variety & value and think KR's fuel rewards/loyalty program will continue to help drive traffic & growth in total & loyal households," the firm added. In addition, Kroger is coming off of a very strong third-quarter earnings report earlier this month. The company beat on the top and bottom line and raised its guidance. Ohmes also likes the stock's valuation. Shares are very attractive at current levels, he said. "Expect beat & raise pattern to continue," he said succinctly. KKR The private equity investment company was recently upgraded to buy from neutral by analyst Craig Siegenthaler. "Asymmetrical upside to profits, growth, valuation & sentiment," he wrote. The firm named a host of reasons why it says it's getting bullish on alternative asset stocks like KKR. "KKR's business is now highly diversified with robust scaling opportunities in multiple verticals, broadly strong investment performance, core competency in product innovation and a best-in-class APAC privates franchise," he wrote. Meanwhile, the stock is down 35% this year, providing an attractive entry point. Siegenthaler said investors should buy shares while sentiment remains negative. He also sees a long runway for growth with a reacceleration in 2023 and 2024. "We think the current moment is a similar negative snapshot in time to other market corrections (2020, 2016, 2011, 2008) which is providing long-term investors another opportunity to buy the Alts (and KKR)," he said. Here are some other things Bank of America had to say this week: Insmed "With underappreciated pipeline, Insmed is a breath of fresh air. ... Insmed's differentiated pipeline and strong underlying fundamentals offer compelling risk/ reward in our view. We recognize much remains to be de-risked, with questions over Arikayce's upside; still we think the story remains attractive. ... Compelling upside opportunities with downside protection." KKR "Asymmetrical upside to profits, growth, valuation & sentiment. ... KKR's business is now highly diversified with robust scaling opportunities in multiple verticals, broadly strong investment performance, core competency in product innovation and a best-in-class APAC privates franchise. We think the current moment is a similar negative snapshot in time to other market corrections which is providing long-term investors another opportunity to buy the Alts." Kroger "Sales & EPS upside from high inflation should continue in F4Q/F24. ... Expect beat & raise pattern to continue. ... We expect broad-based inflation to increasingly drive consumers to grocers offering variety & value (with KR seeing strong growth from higher-income consumers in F3Q) and think KR's fuel rewards/loyalty program will continue to help drive traffic & growth in total & loyal households, well offsetting the impact of smaller baskets." Netflix "Despite slower sub growth, we believe efforts to improve monetization via a value-oriented ad tier and significant conversion of password sharers has the potential to drive operating/financial upside. ... We view NFLX's risk/reward favorably as our bull case upside is 2.0x the bear case of share losses/slowing growth. ... Still the streaming leader." Solo Brands "New products & partners should help drive 4Q upside. ... We see potential upside to conservative 4Q guidance on incremental products & partners. We see significant long-term penetration opportunity in large & growing addressable market. ... We rate Solo Brands' shares Buy as we believe its unique platform strategy should enable its high growth Leisure brands."