From multi-week losing streaks to bear market rallies, it’s been a rollercoaster ride for markets this year as investors weigh the risks of more aggressive monetary policy and a growing chorus of recession warnings. Major US indices rebounded big in trading on Tuesday, reversing last week’s declines, but remained in the red this year. The S&P 500 and the Nasdaq Composite are down more than 20% and 24%, respectively, this year, putting them in bear market territory. The Dow Jones Industrial Average is down 16.6% in the same period. While investors may focus on bigger, more well-known names in the market, Bank of America believes that some small- and mid-cap stocks present an opportunity for investors. Bank of America’s list of the 26 “best small and mid-cap ideas” for 2022 has an average growth potential of 60% over the next 12 months, strategists at the bank, led by Jill Carey Hall, said June 21. . The bank noted that stocks with defensible margins and pricing power have been rewarded in an environment of rising interest rates and soaring inflation. Stocks that are well-positioned to thrive in that environment include food delivery platform DoorDash, which the bank says is “resilient to food and commodity price inflation.” Such pricing pressures may even boost DoorDash’s margins, the strategists said. They forecast margins to improve in 2023. The bank has a $90 price target on the stock, which represents 42.9% upside potential from the stock’s closing price of around $63 on June 21. . The bank also likes Illinois-based Option Care Health. as the “least exposed” to labor cost pressures. The bank also expects the stock to see a further increase from future deals as it continues to roll out its improved free cash flow. Shares of the company closed around $26 on June 21, implying a potential 46.2% gain from the bank’s price target of $38. California-based aircraft leasing firm Air Lease is another of the bank’s top picks. Bank of America expects the company to benefit from a recovery in business aviation, with the worst of the pandemic now “in the past.” The company will also benefit from higher interest rates due to its ability to pass on the higher cost of debt while seeking higher premiums from less investment-grade tenants, the strategists said. The bank has a $55 price target on the stock, an implied 77.4% advantage from its closing price of around $31 on Tuesday. Recession-Resistant Names Bank of America’s list also includes several stocks it believes are well positioned to weather a recession. Technology consulting firm Gartner is one such stock. The bank described it as a “high-quality, defensive” name with sales, margins and profits on the rise. The company enjoys “strong demand” for its services, while its main research sales are relatively “recession resistant,” according to the bank. The bank’s price target of $340 implies a possible 45.9% upside from the stock’s closing price of around $233 on June 21. Bank of America also likes discount retailer Ollie’s Bargain Outlet as a possible beneficiary of a change in consumer behavior. The bank believes that consumers will face increasing financial pressure with the launch of government support programs and the reduction of inflation. “We expect this to drive trade down to Ollie’s, where we find prices are on average 36% below Walmart and Amazon,” Hall said. The bank has assigned a $75 price target to the stock, which represents a potential 25% upside to its closing price of around $60 on Tuesday. Electronics maker Jabil is another Bank of America favorite. The bank says the company is leveraged in end markets that are experiencing secular growth and are “generally recession-proof.” The company counts Apple as a “major customer.” The bank noted that Jabil has been able to expand revenue and margins despite supply chain challenges and inflation, while also passing on cost increases to customers. Bank of America’s $82 price target for the stock implies a potential 51.9% upside from the stock’s closing price of around $54 on June 21.
Forget big cap stocks. Bank of America’s top small-and-mid cap stocks