There's 'lots of opportunity' for alpha.

In the second half of 2019, the story on Wall Street has shifted from fears of an imminent recession to new all-time highs for the S&P 500. The S&P 500 was up about 17% in the first half of the year, but the Bank of America analyst team says there are still plenty of opportunities for selective investors to beat the S&P over the next 12 months. Analyst Jill Carey says there is “lots of opportunity for alpha” among small- and mid-cap stocks. Here are eight of Bank of America’s top picks to beat the market.

Next:Madison Square Garden Co. (ticker: MSG) Credit

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Madison Square Garden Co. (ticker: MSG)

Madison Square Garden hosts events at New York’s Madison Square Garden arena and owns and operates New York professional sports teams the Knicks, Rangers and Liberty. Analyst Bryan Goldberg says Madison Square Garden is a relatively defensive play within the media and entertainment stock group. Goldberg says the company’s growth potential from live events is a plus for long-term investors. Madison Square Garden shares are trading at nearly a 30% discount to Goldberg’s private market valuation for the company. Bank of America has a “buy” rating and $358 price target for MSG stock.

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There's 'lots of opportunity' for alpha.

In the second half of 2019, the story on Wall Street has shifted from fears of an imminent recession to new all-time highs for the S&P 500. The S&P 500 was up about 17% in the first half of the year, but the Bank of America analyst team says there are still plenty of opportunities for selective investors to beat the S&P over the next 12 months. Analyst Jill Carey says there is “lots of opportunity for alpha” among small- and mid-cap stocks. Here are eight of Bank of America’s top picks to beat the market.

Madison Square Garden Co. (ticker: MSG)

Madison Square Garden hosts events at New York’s Madison Square Garden arena and owns and operates New York professional sports teams the Knicks, Rangers and Liberty. Analyst Bryan Goldberg says Madison Square Garden is a relatively defensive play within the media and entertainment stock group. Goldberg says the company’s growth potential from live events is a plus for long-term investors. Madison Square Garden shares are trading at nearly a 30% discount to Goldberg’s private market valuation for the company. Bank of America has a “buy” rating and $358 price target for MSG stock.

Bed, Bath & Beyond (BBBY)

Bed, Bath & Beyond shares are down more than 40% since the beginning of April in a difficult retail environment. However, analyst Curtis Nagle says the company has a legitimate multiyear turnaround opportunity. Nagle says cost cuts, store rationalization and innovative strategies should help the company unlock value. Even after conceding negative same-store sales growth and gross margin in the near term, Nagle says the new Bed, Bath & Beyond leadership team has a golden opportunity to get the company on track for multi-year earnings growth. Bank of America has a “buy” rating and $25 price target for BBBY stock.

Burlington Stores (BURL)

Burlington is a leading U.S. off-price apparel retailer with more than 500 stores nationwide. Analyst Lorraine Hutchinson says the company’s CEO transition in September could be a positive catalyst given incoming CEO Michael O’Sullivan doubled sales and expanded operating margins during his tenure at Ross Stores (ROST). Hutchinson says recent same-store sales trends have improved and off-price retail fundamentals are relatively strong. Burlington has guided for 1% to 2% same-store sales growth in the near term. Bank of America has a “buy” rating and $190 price target for BURL stock.

Domino’s Pizza (DPZ)

Analyst Gregory Francfort says Domino’s is underpriced based on its potential to gain market share and grow revenue in the long term. In addition, Francfort says Domino’s has a significant opportunity to expand its international business at least 10% annually. Domino’s revamped loyalty program should help the company generate solid U.S. same-store sales growth, and Francfort says the company’s highly franchised business model is beneficial to its balance sheet. Francfort says Domino’s stock even trades at a slight valuation discount to peers. Bank of America has a “buy” rating and $300 price target for DPZ stock.

Diamondback Energy (FANG)

It’s been another difficult year for energy stocks, but Diamondback has been one of the exceptions, gaining more than 9% year-to-date. Analyst Asit Sen says investors can gain exposure to top-tier assets in the Midland and South Delaware basins via Diamondback. Sen says Diamondback has a conservative balance sheet and is well-positioned financially to aggressively ramp up activity and production growth in the event of an oil market recovery. Diamondback devotes only 40% of its cash flow to capital expenditure. Bank of America has a “buy” rating and $170 price target for FANG stock.

Sarepta Therapeutics (SRPT)

Sarepta is a biotech company developing treatments for diseases such as Duchenne muscular dystrophy (DMD) and Limb Girdle muscular dystrophy (LGMD). The company’s leading drug is FDA-approved Eteplirsen. Analyst Tazeen Ahmad says Serepta has taken the clear lead in the DMD market. She estimates peak risk-adjusted DMD sales of $3.3 billion in 2022, but says there could be significant upside if DMD market penetration exceeds her 40% estimate. Sarepta is Ahmad’s top biotech stock pick for the second half of 2019. Bank of America has a “buy” rating and $200 price target for SRPT stock.

Marvell Technology Group (MRVL)

Marvell is one of Bank of America’s top small- and mid-cap semiconductor stock picks. Analyst Vivek Arya says the U.S. crackdown on Huawei and the ongoing trade war with China is a headwind. However, 5G network content opportunities make Marvell one of the few companies that can go head-to-head with much larger competitors such as Intel Corp. (INTC) and Broadcom (AVGO). Arya says the Cavium buyout positions Marvell for secular growth in the enterprise data and the 5G mobile cloud/security markets. Bank of America has a “buy” rating and $28 price target for MRVL stock.

Sunrun (RUN)

Solar power leader Sunrun has been on fire so far in 2019, but analyst Julien Dumoulin-Smith says the stock’s 87% year-to-date gain is just the tip of the iceberg. On July 2, Sunrun announced a refinancing of its senior secured credit facility that Dumoulin-Smith says significantly lowers the company’s cost of capital. He says the debt market for residential solar is seemingly on the upswing for Sunrun and its peers, and Sunrun could have further refinancing opportunities before the end of 2019. Bank of America has a “buy” rating and $25.50 price target for RUN stock.

Top stocks to buy for alpha:

Madison Square Garden Co. (MSG)Bed, Bath & Beyond (BBBY)Burlington Stores (BURL)Domino’s Pizza (DPZ)Diamondback Energy (FANG)Sarepta Therapeutics (SRPT)Marvell Technology Group (MRVL)Sunrun (RUN)1 of 11

Wayne Duggan, Contributor

Wayne Duggan has been a U.S. News & World Report contributor since 2016. He is an expert at ...  Read more

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