Bank of America lists its top stock picks for the second quarter

Published Wed, Apr 5 202312:31 PM EDTUpdated Mon, Apr 10 202310:16 AM EDT

With the start of the second quarter, Bank of America has a new list of short-term ideas for investors seeking clarity amid ongoing market volatility. The firm compiled a list of high-conviction stock recommendations in a note to clients earlier this week. In the note, chief investment strategist Michael Hartnett noted that investors moved a record $508 billion into cash during the first quarter of this year. Stocks rose in the first quarter despite severe turmoil caused by a series of banking crises — including regulators' shutdown of Silicon Valley Bank and Signature Bank and UBS' buyout of Credit Suisse — as well as persistent fears of ongoing interest rate hikes and a potentially deeper recession. The S & P 500 rose 7% in the first quarter. The Dow Jones Industrial Average and Nasdaq Composite advanced 0.4% and 16.8%, respectively. It was also the biggest quarterly advance for the Nasdaq since the second quarter of 2020, when it rallied 30.6%. To be sure, the risks shrugged off by the market remain, and could add to volatility in the second quarter. Here are five of the stocks highlighted by Bank of America. Bank of America analysts named UnitedHealth as a key short-term pick, saying it is well-positioned to strengthen through periods of macroeconomic uncertainty due to its scale, diversity and exposure to the growing Medicare Advantage market and subsidiary health care provider Optum. The bank expects its Medicare Advantage plans to comprise two-thirds of the company's revenue growth for this year. The bank assigned a $650 price target on UnitedHealth, suggesting the stock could gain more than 31% from Tuesday's close. The stock has shed 5% far this year. It's up more than 5% in April, however. "UNH's scale gives the business unique levers to continue achieving double digit EPS growth even in harsh economic conditions through cost and operational synergies across its insurance, technology, and pharmacy platforms," research analyst Kevin Fischbeck wrote in a note. Another stock the bank is bullish on is Lamb Weston , which is building on last year's strong performance. Shares of the food processing company are up 16% this year, after gaining 40% in 2022. The bank expects even more gains for the stock, with its 12-month price target of $115 per share implying 11% upside from Tuesday's close of $103.58. "Restaurant demand/traffic (~85% of LW's sales) was strong in January/February after a slower December, which could present upside to BofA/consensus sales," analyst Peter Galbo wrote in a note. "In addition, LW continues to showcase best in class pricing power across [consumer packaged goods] with minimal elasticities and plans for an additional price increase to begin flowing through this spring/summer." The analyst also expects the company's fiscal third-quarter earnings, due Thursday, to beat consensus expectations. Galbo sees a 21.6% increase in organic sales for the quarter. Bank of America's buy list also includes FedEx , Lowe's , and Netflix . Analysts at the bank aren't as bullish on CarMax Bank of America expects CarMax shares to shed 37% to its $40 per share price target. "CarMax Auto Finance (CAF) has come under pressure as originations have slowed, interest rates have increased, spreads have compressed, and loan losses have begun to normalize," research analyst John Murphy wrote in the note. "In our view, CAF is not imploding, and we don't foresee any extreme risk. However, we expect earnings to come under material pressure as cost of funds continue to rise relative to rates charged to customers."