Bank of America: 4 stocks worth checking for September
Bank of America has published a list of stocks with a "buy" rating that it believes are entering September with business tailwinds - including a chip equipment manufacturer, a consumer goods company, and the stock that owns an NBA champion. But the very stock presented as the star of the list also receives a warning. What is hidden behind the recommendations?
As Wall Street enters September - the month historically considered the worst for the stock market - Bank of America chooses to go against the grain and points to a series of stocks that it believes offer upside potential right now.
The most prominent recommendation in terms of market weight belongs to ASML, the Dutch chip manufacturing equipment giant that is an almost exclusive supplier of the world's most advanced lithography machines. Analyst Didier Semma calls the decline in the stock in recent months an "unjustified undervaluation" and calls on clients to take advantage of the weakness and buy.
According to him, the relative weakening of the stock over the last 12 months was mainly due to the fact that competitors were repriced upwards while ASML was left behind - and not due to a fundamental problem in the business itself.
Semma emphasizes that the company still enjoys "some of the best earnings per share growth in the industry" supported by profit margin expansion, and holds a price target of 2,452 euros per share, an upside of about 65%. The other side of the coin: the bank itself admits that capacity constraints and increasing competition are weighing on the company. ASML stock has already jumped about 50% since the beginning of the year, so much of the optimism may already be priced in.
The second name on the list is Church & Dwight, a manufacturer of consumer products such as Arm & Hammer baking soda, toothpaste, and shampoo. Analyst Anna Lizol argues that management is pulling all the right strings during the recovery process: a successful combination of value products and premium products, and innovation that fuels leading brands.
According to her, the combination of these factors is expected to bring the company to a level of gross profit margin "it has never achieved in its history." The stock has risen about 21% since the beginning of the year.
The "exotic" choice on the list is Madison Square Garden Entertainment, the owner of the New York Knicks basketball teams and the New York Rangers hockey team, as well as the legendary performance venue.
Analyst Peter Henderson sees further room for growth following a strong quarterly report, which he says was supported by strong concert activity at the venue alongside a one-time contribution from the Knicks' championship run and higher revenues from sponsorships, signage, and hospitality suites. Henderson estimates that "healthy operating leverage will lead to profit margin expansion" and strong growth in adjusted operating profit. The stock has already risen about 45% since the beginning of the year.
Tapestry, the parent company of luxury brands Coach and Kate Spade, was presented in the review's headline as the star of the list - but a careful reading of the analysts' note reveals a more qualified picture. The bank does indeed expect "consistent and strong earnings per share growth" driven mainly by the Coach brand and stabilization at Kate Spade.
However, in the same breath, it adds a significant caveat: the strong fundamentals have already pushed the stock's multiple to record levels, and therefore "we see limited upside potential for the stock from here." In other words - an excellent company, but a stock that may have already exhausted itself. The positive point that remains is the continued aggressive return of capital to shareholders, supported by strong free cash flow. This is an important reminder for every investor: an excellent business and an attractive stock price are not the same thing.
The Bank of America list offers variety: exposure to the artificial intelligence and chip wave (ASML), a defensive anchor of consumer goods (Church & Dwight), and a growth play in the entertainment and sports sector (MSG). This diversification is not accidental - it allows for exposure to different scenarios in a month where the general direction of the market is uncertain.
However, two caveats are necessary. First, three of the four stocks have already recorded sharp double-digit gains since the beginning of the year, so an investor is entering after some of the move has already happened.
Second, "buy" recommendations from an investment house reflect the bank's time horizon and risk appetite - not necessarily yours. In an environment of high bond yields and uncertainty around the Fed's interest rate, growth stocks with high multiples are particularly sensitive to shocks.
