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Alphabet, Inc. (GOOG, GOOGL)
Forward P/E Ratio
20.9
Price/Sales Ratio
6.5
3-Year Avg. Annualized Revenue Growth
17.3%
20.9
6.5
17.3%
Editor's Take
Alphabet is a global leader in internet search and online advertising, and it is the parent company of Google, Google Cloud, YouTube and other technology subsidiaries.
Alphabet’s stock has underperformed its online advertising and artificial technology peers so far in 2024, but analyst Justin Post says Google’s Gemini AI model could serve as an important catalyst for Alphabet in the coming months. Post is specifically optimistic Alphabet will disclose that integrating AI technology into its search engine is improving both usage and monetization metrics.
“Our positive near-term view on the stock in [the second quarter of 2024] stems from multiple catalysts including upcoming company events to showcase AI capabilities (Cloud Next and Google I/O), potential acceleration in online media sector which could lead to 1Q Search upside, potential for Gemini image relaunch that could help with sentiment on Google’s AI capabilities, and potential for further evidence of expense efficiencies that the company indicated would materialize in 2024,” Post says.
Bank of America has a “buy” rating and $173 price target for GOOGL stock.
Citigroup, Inc. (C)
Forward P/E Ratio
8.6
Price/Sales Ratio
1.6
3-Year Avg. Annualized Revenue Growth
2.6%
8.6
1.6
2.6%
Editor's Take
Citigroup is one of the largest U.S. banks and also a diversified financial services company with a large global customer base.
Analyst Ebrahim Poonawala says Citigroup’s stock is attractively valued given the company’s target to reach a 10% return on tangible common equity by 2026. ROTCE is calculated by dividing a company’s net income, or its bottom line, by its average monthly shareholders’ equity, minus intangible assets such as core deposits and goodwill.
Poonawala adds that Citigroup’s restructuring efforts should help the bank improve its operating efficiency. He also says Citigroup should have opportunities to ramp up its share buybacks.
“In our view, the gap between perceived versus real risk should narrow as the Street gains better visibility into the core earnings trajectory, thereby driving a re-rating higher in the stock,” Poonawala says.
Bank of America has a “buy” rating and $65 price target for C stock.
Fidelity National Information Services, Inc. (FIS)
Forward P/E Ratio
13.2
Price/Sales Ratio
4.2
3-Year Avg. Annualized Revenue Growth
-8.2%
13.2
4.2
-8.2%
Editor's Take
Fidelity National Information Services is a leading global provider of financial technology solutions for merchants, capital market firms and banks.
Analyst Jason Kupferberg says Fidelity National’s sale of its majority ownership stake in Worldpay to private equity investors in the first quarter leaves the company well-positioned to generate significant recurring revenue and execute aggressive capital return programs moving forward. He says the company’s upcoming Investor Day event on May 7 will also provide investors with clarity on the company’s financial outlook and strategy following the Worldpay divestment and could be a bullish catalyst for the stock.
“We expect the ‘new’ FIS to have significant recurring revenue, a simplified business model and significant return of cash to shareholders in the form of both share buybacks ($3.5B+ in ’24, up from $3B+ prior with potential for further upside) and dividends (~35% payout ratio),” Kupferberg says.
Bank of America has a “buy” rating and $79 price target for FIS stock
FIS is a fintech company that is unrelated to Fidelity Investments, a Boston-based brokerage and money management firm, whose parent is Fidelity Management & Research Company.
Intuitive Surgical, Inc. (ISRG)
Forward P/E Ratio
52.2
Price/Sales Ratio
18.7
3-Year Avg. Annualized Revenue Growth
17.1%
52.2
18.7
17.1%
Editor's Take
Intuitive Surgical is a health care equipment company that developed the da Vinci Surgical System, which uses advanced robotics and computerized visualization technology to perform minimally invasive surgeries.
Analyst Travis Steed says the success of Intuitive’s new da Vinci 5 system could drive analysts to raise their 2025 and 2026 earnings estimates for the company, a potential positive catalyst for the stock. While the stock’s forward earnings multiple is certainly expensive, Steed says the company’s long-term growth outlook and massive total addressable market, or TAM, justify a premium valuation.
“We think ISRG will continue to expand the TAM and ISRG’s premium multiple can hold,” he says.
Bank of America has a “buy” rating and $450 price target for ISRG stock.
The Kraft Heinz Company (KHC)
Forward P/E Ratio
12.3
Price/Sales Ratio
1.7
3-Year Avg. Annualized Revenue Growth
0.2%
12.3
1.7
0.2%
Editor's Take
Kraft Heinz is one of the world’s largest consumer packaged food and beverage companies. It is the parent company of popular brands such as Kraft, Heinz, Oscar Meyer and Maxwell House.
Analyst Bryan Spillane says Kraft Heinz’s year-over-year growth numbers could jump in the second quarter as it laps the reduction in supplemental nutrition assistance program, or SNAP, benefits that went into effect in the second quarter of 2023. Spillane says Kraft Heinz’s stock is attractively valued and the company is positioned to meet or exceed Wall Street earnings estimates.
“A positive inflection in volumes should support low valuation and potentially drive rotation from other consumer staples sub-sectors (Beverages/Household Personal Care) as investors chase underperforming food names,” he says.
Bank of America has a “buy” rating and $40 price target for KHC stock.
The Progressive Corporation (PGR)
Forward P/E Ratio
18.2
Price/Sales Ratio
1.9
3-Year Avg. Annualized Revenue Growth
11.5%
18.2
1.9
11.5%
Editor's Take
Progressive is a leading U.S. auto and motorcycle insurance provider, including commercial auto insurance.
Analyst Joshua Shanker says the U.S. personal auto insurance industry is in a once-in-a-generation pricing cycle, and the latest data suggests auto insurance prices are up 38% in the past two years. The surging cost of auto insurance has pushed more policyholders to shop around for better rates, a phenomenon Shanker says is good news for Progressive.
“In our view, Progressive, with its omnivorous distribution appetite, ubiquitous brand recognition and better expense-driven value for customers, has been and will continue to be a multi-year market share gainer from increased shopping activity,” he says.
Bank of America has a “buy” rating and $265 price target for PGR stock.
Spotify Technology S.A. (SPOT)
Forward P/E Ratio
50.8
Price/Sales Ratio
3.9
3-Year Avg. Annualized Revenue Growth
19.0%
50.8
3.9
19.0%
Editor's Take
Spotify is the largest independent provider of streaming music content, both subscription and ad-supported, and is also expanding into podcasts and other forms of audible content.
Analyst Jessica Reif Ehrlich says Spotify should improve gross margins, operating income and free cash flow now that it has completed its restructuring and reduced its employee headcount by about 25%. She projects annual revenue growth in the mid-teens percentage range through at least 2026.
“The combination of highly visible revenue and moderating expense growth should enable the company to meet or exceed intermediate term (2-3 years) gross margin targets i.e. 30%+, with a longer term goal of 35%,” Ehrlich says.
Bank of America has a “buy” rating and $315 price target for SPOT stock.
Tapestry, Inc. (TPR)
Forward P/E Ratio
8.7
Price/Sales Ratio
1.4
3-Year Avg. Annualized Revenue Growth
11.5%
8.7
1.4
11.5%
Editor's Take
Tapestry designs and markets luxury accessories such as handbags, footwear and fragrances under its luxury lifestyle brands Coach, Kate Spade and Stuart Weitzman.
Analyst Lorraine Hutchinson says Tapestry’s stock is undervalued relative to its impressive margin profile and cash flow generation. She is also bullish on the company’s pending $8.5 billion acquisition of Capri (CPRI), the parent company of fashion brands Jimmy Choo and Michael Kors.
“The combined company cash flow should support steady debt paydown and TPR’s experience with reconfiguring distribution at Coach can be applied to Kors,” Hutchinson says.
Bank of America has a “buy” rating and $52 price target for TPR stock.
TopBuild Corp. (BLD)
Forward P/E Ratio
18.4
Price/Sales Ratio
2.6
3-Year Avg. Annualized Revenue Growth
22.7%
18.4
2.6
22.7%
Editor's Take
TopBuild is a leading U.S. commercial insulation installer and specialty distributor.
Analyst Rafe Jadrosich says productivity improvements, a favorable pricing environment and acquisition synergies create opportunities for TopBuild to expand its margins. In addition, Jadrosich says an uptick in single-family housing starts could boost fiberglass prices further, and TopBuild has a growing opportunity in the spray foam insulation market as well.
“TopBuild’s guidance conservatively assumes single-family starts roughly in-line with the current trend (low-to-mid single% YoY in 2024) but we see upside to the starts outlook and expect single-family starts to increase ~9%,” Jadrosich says.
Bank of America has a “buy” rating and $475 price target for BLD stock.
*All data sourced from Morningstar and Bank of America analyst reports, current as of May 3, 2024.
Methodology
At the beginning of each quarter, Bank of America compiles a list of its highest-conviction stock ideas for the quarter based on fundamental analysis performed by its equity analyst team.
For each stock included on the list, analysts highlight unique catalysts that are likely to occur before the end of the quarter.
All stocks on the list are covered by Bank of America analysts, and the stocks chosen typically remain on the list throughout the quarter unless coverage is dropped or an analyst’s recommendation changes.
Bank of America’s top 10 U.S. ideas list contains both long ideas and short ideas, but the stock recommendations included in this list are the firm’s long ideas only.
How To Start Investing in Stocks Today
If you want to know how to start investing in stocks today, the key is to know how to start investing—period.
The first step in solving that puzzle is to create your investment plan. That requires you to answer three questions. First, what are your financial goals? Second, how much time do you have to achieve those goals? Third, how much anxiety in your portfolio can you stomach along the way?
The answer to this third question is known as your risk tolerance. It can be low, moderate or high. Your risk tolerance might indicate how much of your portfolio you want to dedicate to assets like stocks.
Investments tend to rise and fall over time. Some, like stocks, generally experience bigger ups and downs than investments like bonds and cash.
What To Look For When Buying Stocks
When buying stocks, it’s essential to do your research and consider the factors that can impact the performance of every company. Here’s what you need to watch out for:
- Fundamentals. Start by researching the company’s financial statements, such as their revenue, earnings, profit margins and debt-to-equity ratio. Figures like these help you determine the company’s overall financial health and whether its stock is a worthwhile investment.
- Industry trends. Understand trends in the company’s industry. Research reports, news and analyst predictions like the ones outlined above to get a better sense of where the industry is heading.
- Management. The experience and track record of a company’s management team can significantly impact its success. Look at their history of decision-making, leadership and overall strategy.
- Competitive advantage. Look for companies with a competitive advantage over their peers, such as strong brand recognition or unique intellectual property. This can give them an edge in the market and help the stock sustain appreciation and dividend payouts over time.
- Valuation. Assess whether the stock is overvalued or undervalued compared to similar companies in the industry. You can use metrics like price-to-earnings ratio, price-to-sales ratio and the price-to-book ratio to help determine the stock’s valuation.
- Dividend yield. Always look for stocks that offer a decent dividend yield, since over time dividend payments can make up for a significant part of your return on investment.
- Risks. Every investment comes with risks, and you need to assess the risks associated with the stock you might be purchasing. Look at factors like the company’s debt level, overall industry volatility and geopolitical risks that could impact the company’s performance.
Different Ways To Invest in Stocks
There are many different ways to invest in stocks. Some of the most common include:
- Investing directly in individual stocks on the stock market.
- Indirectly investing via traditional mutual funds and ETFs.
- Indirectly investing via closed-end funds.
- Investing indirectly through investment pools known as collective investment funds, which are often run by banks and trust companies and are primarily part of a workplace retirement plan or stock bonus plan.
- Investing indirectly through so-called derivatives, which are financial contracts—such as futures contracts—with values based on underlying assets.
Your time horizon is the most important variable at the end of the day. If you have a lot of time, you can invest as if you have high risk tolerance because lots of time means you have time to recover from whatever might go wrong in the markets, even if what goes wrong isn’t your fault.
– Aaron Bachman, managing director of Stewart Partners Global Advisory
Alternatives To Investing in the Stock Market
If your top priority is indeed growth of principal, there are alternative investments to the stock market. These kinds of investments include:
- Hedge funds
- Private real estate
- Collectibles
- Private equity
- Cryptocurrencies
- Private debt and venture debt
- Derivatives
- Commodities, such as oil, precious metals and agricultural products.
Alternative investments typically have two traits, says Alison Staloch, CFO of Fundrise. First, their investment returns often are not correlated with the publicly traded markets. They tend to zig when the exchanges zag. Second, their underlying investments are not bought and sold on the publicly traded markets either.
“And the best young private companies often grow much faster than once they go public,” Staloch says.
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Frequently Asked Questions (FAQs) on Buying Stocks
Do I need a broker to buy stocks?
You need a broker to buy stocks. A broker is a licensed professional who can buy and sell stocks on your behalf. It’s important to research and compare different brokers to find the one that best suits your needs, investment goals and price preference.
How can I buy stocks online?
You need to open an online brokerage account in order to buy stocks online. While some brokers are traditional brick-and-mortar firms, online brokerages offer commission-free trading and low fees.
How much should I invest in stocks?
How much to invest in stocks depends entirely on your personal financial goals and risk tolerance. A common rule of thumb is to invest between 5% and 10% of your total portfolio value in individual stocks and the rest in diversified funds.
How do stocks perform when interest rates are high?
It’s tough to generalize, but high interest rates make it more expensive for companies to borrow money, which can negatively impact their earnings and profitability. In addition, higher interest rates can also make bonds and other fixed-income investments more attractive to investors, drawing money away from the stock market.
However, it’s important to note that the relationship between interest rates and the stock market can be complex and there are many other factors that can impact stock performance, such as the overall economic environment, company-specific factors, and investor sentiment.
How do I pick the right stock?
The key to successful stock picking is simply to buy low and sell high. However, there are many ways to accomplish this goal. One way is to anticipate which stocks will increase their earnings.
Anticipating earnings increases is the goal of conventional stock picking in both fundamental analysis and technical analysis.
So, how can you pick the right stocks? David Blaylock, director of advice and compliance for RIA firm Origin, says, “Look for stock in companies that you understand enough to know whether they are headed for bigger future profits. And headed that way within your investment time frame.”
