Incredibly, the first quarter is now history, after a volatile 90 days to start 2023 that saw the return of bank failures, rising interest rates, the ongoing war in Ukraine, continued hot and sticky inflation, and a host of additional items that have kept the pressure on stocks. Despite all the negatives, each of the major indexes finished the quarter higher. The tech-heavy Nasdaq led the way, closing up almost 17%, while the S&P 500 scratched out a hard-fought 7% gain and the Dow Jones industrials just barely closed positive, up 0.5%.
The question on the minds of many investors and traders is what the second quarter will bring. With a host of top strategists forecasting recession later this year, and interest rates likely to climb higher, it could be a more-of-the-same quarter. With a reported $508 billion moved to cash during the first quarter, there is plenty of dry powder for stocks, but will the economy remain strong enough for another big move higher?
BofA Securities is among the first out with top ideas for the second quarter of 2023. Its research report has eight stocks to buy, long ideas that at first glance look like outstanding stock picks for growth investors. It also has two that are expected to underperform, CarMax Inc. (NYSE: KMX) and United Airlines Holdings Inc. (NYSE: UAL), which could be possible short sale candidates for investors who are more aggressive.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
CubeSmart
This self-storage real estate investment trust (REIT) may seem an odd beneficiary of rising rates, but it is one. CubeSmart (NASDAQ: CUBE) is a self-administered, self-managed REIT. Its self-storage properties are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. According to the Self-Storage Almanac, CubeSmart is one of the top three owners and operators of self-storage properties in the United States.
In a rising rate environment, hard assets like real estate gain in value, and the self-storage REITs are also in a good position as capital expenditures and the need for additional capital are often very low.
Investors receive a 4.13% dividend. The BofA Securities price target for CubeSmart stock is $64, and the consensus target is $51.40. The stock closed on Wednesday at $47.54.
FedEx
Given the huge increase in internet shopping and sales, the delivery giant has a strong path for growth. FedEx Corp. (NYSE: FDX) provides transportation, e-commerce and business services in the United States and internationally.
Its FedEx Express segment offers express transportation, small-package ground delivery and freight transportation services; time-critical transportation services; and cross-border enablement, technology and e-commerce transportation solutions. The FedEx Ground segment provides day-certain delivery services to businesses and residences. And the FedEx Freight segment offers less-than-truckload freight transportation services. As of May 31, 2022, this segment had approximately 30,000 vehicles and 400 service centers.
The FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection and back-office support services. The Corporate, Other and Eliminations segment offers integrated supply chain management solutions, specialty transportation, customs brokerage and global ocean and air freight forwarding services. It offers document and business services, as well as retail access to its customers for its package transportation businesses.
Shareholders receive a 2.01% dividend. BofA Securities has set its price target at $305. FedEx stock has a consensus target of $239.81, and Wednesday’s close was at $229.93.
Flowserve
This company should get a boost from the potential for an improving economy, and the proposed infrastructure build. Flowserve Corp. (NYSE: FLS) designs, manufactures, distributes and services industrial flow management equipment in the United States, the Middle East, Europe and elsewhere.
Its Flowserve Pump Division segment offers custom and pre-configured pumps and pump systems, mechanical seals, auxiliary systems, replacement parts, upgrades and related aftermarket services, including installation and commissioning services, seal systems spare parts, repairs, advanced diagnostics, rerate and upgrade solutions, retrofit programs and machining and asset management solutions. It also manufactures a gas-lubricated mechanical seal for use in high-speed compressors for gas pipelines.
The Flow Control Division segment provides engineered and industrial valve and automation solutions, including isolation and control valves, actuation, controls and related equipment, as well as equipment maintenance services for flow control systems, including advanced diagnostics, repair, installation, commissioning, retrofit programs and field machining capabilities. This segment’s products are used to control, direct and manage the flow of liquids, gases and multiphase fluids.
The company primarily serves oil and gas, chemical and pharmaceuticals, power generation and water management markets, as well as general industries, including mining and ore processing, pulp and paper, food and beverage and other smaller applications. Flowserve distributes its products through direct sales, distributors, and sales representatives.
The dividend yield here is 2.32%. The BofA Securities price objective is $40, while the consensus target is $37.30. Flowserve stock closed at $32.57 on Wednesday.
Lamb Weston
While somewhat off the radar, this is a safer play for nervous investors. Lamb Weston Holdings Inc. (NYSE: LW) produces, distributes and markets value-added frozen potato products to retail and foodservice customers; grocery, mass merchants, club and specialty retailers; and businesses, educational institutions, independent restaurants, regional chain restaurants and convenience stores worldwide.
The company offers frozen potatoes, commercial ingredients and appetizers under the Lamb Weston brand, as well as under various customer labels. It also offers its products under its owned or licensed brands, such as Grown in Idaho and Alexia, and other licensed brands, as well as under retailers’ brands. In addition, it engages in the vegetable and dairy businesses.
Lamb Weston stock comes with a 1.07% dividend. The $115 BofA Securities price target compares with a $107.80 consensus target and Wednesday’s close was at $104.17.
Lowe’s
This leading home improvement retailer has a low 6% of foreign sales, and it remains a top pick at Goldman Sachs. Lowe’s Companies Inc (NYSE: LOW) has more than 2,000 stores in the United States and Canada. The company has tempered its new store opening plans and is focusing investments on technology and e-commerce capabilities, in addition to improving its retail store productivity.
Lowe’s offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under the categories of kitchens and appliances; lumber and building materials; tools and hardware; fashion fixtures; rough plumbing and electrical; lawn and garden; seasonal living; paint; home fashions; storage and cleaning; flooring; millwork; and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
Top analysts have felt for some time that the company’s tool rental business, which is a $1.5 billion revenue opportunity, is a strong catalyst for multiple expansion.
Shareholders receive a 2.06% dividend. Lowe’s Companies stock has a $278 target price at BofA Securities. The $229.17 consensus target is closer to Wednesday’s closing print of $199.43.
Netflix
The entertainment and production giant has evolved in a big way over the past few years and could be ready to soar higher. Netflix Inc. (NASDAQ: NFLX) offers TV series, documentaries, feature films and mobile games across various genres and languages. It provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes and mobile devices. The company has approximately 231 million paid members in 190 countries.
The BofA report noted this:
Supported by its world class brand, leading global subscriber base and position as a leading innovator, we believe Netflix is poised to outperform driven by four main drivers: (1) a crackdown on password sharing, (2) the introduction of a value oriented, ad-supported tier which expands the total-addressable-market and monetization, (3) an inflection point in free cash flow, and (4) a significant subscriber runway accelerating by the shift from linear to streaming.
The BofA Securities price target of $410 is well above the $357.23 consensus figure. Netflix stock closed at $342.35 on Wednesday.
Progressive
One business that never seems to struggle is insurance, and this is a leader in the industry. Progressive Corp. (NYSE: PGR) provides personal and commercial auto, personal residential and commercial property, general liability, and other specialty property-casualty insurance products and related services in the United States. It operates in three segments.
Its Personal Lines segment writes insurance for personal autos and recreational vehicles. This segment’s products include personal auto insurance and special lines products, including insurance for motorcycles, ATVs, RVs, watercrafts, snowmobiles and related products.
The Commercial Lines segment provides auto-related primary liability and physical damage insurance, and business-related general liability and property insurance for autos, vans, pickup trucks and dump trucks used by small businesses; tractors, trailers and straight trucks primarily used by regional general freight and expeditor-type businesses and long-haul operators; dump trucks, log trucks and garbage trucks used by dirt, sand and gravel, logging and coal-type businesses; and tow trucks and wreckers used in towing services and gas/service station businesses; as well as non-fleet and airport taxis and black-car services.
The Property segment writes residential property insurance for homes, condos, manufactured homes, and renters, as well as offers personal umbrella insurance, and primary and excess flood insurance. The company also offers policy issuance and claims adjusting services, and it acts as an agent to place business owners’ policies, general and professional liability, and workers’ compensation insurance. In addition, it provides reinsurance services. The company sells its products through independent insurance agencies, as well as directly on the internet through mobile devices and over the phone.
Investors receive just a 0.28% dividend. The BofA Securities price target is $177. The consensus target was last seen at $146.93. On Wednesday, Progressive stock closed at $146.43.
UnitedHealth
A whopping 45% of fund managers recently surveyed have bought shares of this company. UnitedHealth Group Inc. (NYSE: UNH) operates through the following four segments.
Its UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, midsized employers, small businesses and individuals; health and well-being services to individuals age 50 and older, addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; and Medicaid plans, Children’s Health Insurance Program, and health care programs; and health and dental benefits.
The OptumHealth segment provides access to networks of care provider specialists, health management services, care delivery, consumer engagement and financial services. This segment serves individuals through programs offered by employers, payers, government entities and directly with the care delivery systems.
The OptumInsight segment offers software and information products, advisory consulting arrangements, and services outsourcing contracts to hospital systems, physicians, health plans, governments, life sciences companies and other organizations.
OptumRx is the segment that provides pharmacy care services and programs, including retail network contracting, home delivery, specialty and compounding pharmacy, and purchasing and clinical. It also develops programs in areas such as step therapy, formulary management, drug adherence and disease/drug therapy management.
UnitedHealth stock investors receive a 1.34% dividend. BofA Securities has a target price of $650, while the consensus target is $596.26. Wednesday’s $509.23 close was up over 3% on the day.
These are eight great stock ideas for the second quarter of 2023, along with two potential short sale ideas. All the long picks make good sense for growth investors looking to take some profit and move to new positions. With first-quarter earnings reports right around the corner, buying partial positions makes sense now, to check out not only the results for the quarter but the outlook for the rest of 2023.
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