The 8 Best Stocks To Buy Now
| Company (Ticker) | Forward P/E Ratio |
|---|---|
American Homes 4 Rent (AMH) | 54.6 |
Citigroup (C) | 8.9 |
Fidelity National Information Services (FIS) | 13.2 |
Humana (HUM) | 13.7 |
Intuitive Surgical (ISRG) | 58.1 |
Lear (LEA) | 7.9 |
Trex (TREX) | 36.6 |
Union Pacific (UNP) | 21.3 |
American Homes 4 Rent (AMH)
Forward P/E Ratio
54.6
Price/Sales Ratio
7.9
3-Year Avg. Annualized Revenue Growth
9.2%
54.6
7.9
9.2%
Why We Picked It
American Homes 4 Rent is a leading owner and operator of single-family homes for lease, offering high-quality homes, primarily in the U.S. Sun Belt region.
Bank of America analyst Joshua Dennerlein says the single-family housing sector has several tailwinds in 2024. For one, supply is limited. Another tailwind is created by shifting demographics that support single family renting. Dennerlein says American Homes 4 Rent also has opportunities to grow via both strategic acquisitions and internal property development.
He predicts there could be a boom in single family housing rentals in the next five-plus years. “Millennials are past peak apartment renting age (32), and the demographic bulge is shifting towards SFR (average renter age of 39),” Dennerlein says. SFR refers to single family rental.
Bank of America gives AMH stock a “buy” rating and $44 price target.
Citigroup (C)
Forward P/E Ratio
8.9
Price/Sales Ratio
1.3
3-Year Avg. Annualized Revenue Growth
0.1%
8.9
1.3
0.1%
Why We Picked It
Citigroup is one of the largest diversified financial services companies, with a large, global customer base. Its Citibank is among the whales of the banking industry.
Analyst Ebrahim Poonawala says Citigroup CEO Jane Fraser is implementing aggressive initiatives to transform and improve the company. He adds that Citigroup has opportunities to grow earnings per share in 2024 and beyond. As Wall Street gains additional clarity and confidence about Citi’s core earnings trajectory, Poonawala says the stock could see significant valuation upside.
“Trading at 0.5 times TBV (tangible book value) and 8.3 times 2024 P/E versus 11.4 times mega-cap peer median, we believe that the valuation discount relative to peers and [return on tangible common equity] potential sets [Citigroup up] for an attractive risk/reward,” Poonawala says.
Bank of America has a “buy” rating and $60 price target for C stock.
Fidelity National Information Services (FIS)
Forward P/E Ratio
13.2
Price/Sales Ratio
2.5
3-Year Avg. Annualized Revenue Growth
12.0%
13.2
2.5
12.0%
Why We Picked It
Fidelity National Information Services is a leading global provider of financial technology solutions for merchants, banks and capital market firms.
Analyst Jason Kupferberg says the sale of a 55% stake in Fidelity National’s Worldpay Merchant Solutions business will improve Fidelity National’s financial visibility, and potentially eliminate a drag on growth and investor sentiment. Once the transaction is complete, Kupferberg says Fidelity National will have a simplified business model, significant recurring revenue and opportunity for aggressive shareholder returns via dividend payments and share buybacks.
He says the company’s initial 2024 guidance could be a bullish catalyst. “Once this guidance is out, we believe more investors will be interested in the stock, with a clean set of numbers disclosed,” Kupferberg says.
Bank of America puts a “buy” rating and $72 price target on FIS stock.
Humana (HUM)
Forward P/E Ratio
13.7
Price/Sales Ratio
0.5
3-Year Avg. Annualized Revenue Growth
12.7%
13.7
0.5
12.7%
Why We Picked It
Humana is a leading health insurance company that provides a wide range of managed health care plans and related services to individuals, groups and the U.S. military.
Analyst Kevin Fischbeck says Humana has several ways it could get to an impressive $37 in earnings per share by 2025 from today’s EPS around 24. In December 2023, Cigna (CI) officially abandoned its plan to acquire Humana, but Fischbeck says Humana walking away from the deal speaks volumes about the company’s internal growth outlook.
He says Humana’s fourth-quarter earnings results in February will be critical to the stock’s upside potential. “Heading into 2024, HUM will have the ability to restore confidence if it can successfully grow at or above the [health care industry] market [rate] while showing some amount of margin improvement,” Fischbeck says. He adds that HUM expects 2024 earnings to grow around 11%.
Bank of America has a “buy” rating and $640 price target for HUM stock.
Intuitive Surgical (ISRG)
Forward P/E Ratio
58.1
Price/Sales Ratio
18.6
3-Year Avg. Annualized Revenue Growth
11.6%
58.1
18.6
11.6%
Why We Picked It
Intuitive Surgical is a health care equipment company that developed the da Vinci Surgical System, which uses computerized visualization technology and advanced robotics to perform minimally invasive surgical procedures.
Analyst Travis Steed says Intuitive Surgical is one of his top overall stock picks for 2024. Steed says the stock is a pure-play investment in soft tissue robotic surgery, the best growth market in the entire medtech industry. He says Intuitive has an opportunity in coming years to grow annual earnings per share at a double-digit percentage rate, even if the company does not announce a new surgical system product.
“However, a new system could be a significant catalyst to drive the stock higher as it would be the start of a new three-to-five-year cycle for earnings upgrades,” Steed says.
Bank of America places a “buy” rating and $400 price target on ISRG stock.
Lear (LEA)
Forward P/E Ratio
7.9
Price/Sales Ratio
0.3
3-Year Avg. Annualized Revenue Growth
1.8%
7.9
0.3
1.8%
Why We Picked It
Lear supplies seating and electric power management systems to the global auto industry.
Analyst John Murphy says Lear’s track record of industry-leading growth, above-average margins, impressive cash flow and capital distributions sets it apart from other auto suppliers. In addition, Murphy says Lear’s E-Systems segment provides the company with exposure to some of the most attractive growth trends in the auto industry, including electrification and connectivity.
In the near term, he says margin expansion and a recovery of global auto production volumes could be bullish catalysts for Lear’s share price. “Improving production volume is key to delivering operating leverage as Lear can leverage its fixed costs on a larger base,” Murphy says.
Bank of America has a “buy” rating and $220 price target for LEA stock.
Trex (TREX)
Forward P/E Ratio
36.6
Price/Sales Ratio
7.9
3-Year Avg. Annualized Revenue Growth
14.1%
36.6
7.9
14.1%
Why We Picked It
Trex is the world’s largest composite decking and railing products manufacturer.
Analyst Rafe Jadrosich says Trex has multiple sales growth tailwinds that will help the company exceed its long-term revenue growth target of between 11% and 13% in 2024. Conversion from wood has helped composite decking outgrow other building product categories. In addition, Jadrosich says Trex has an impressive slate of product launches on the horizon, as it has successfully expanded into adjacent products such as fasteners and entry level railing. The company is gaining market share from competing brands.
“We believe a higher target multiple is justified given the lower interest rate environment and outlook for above-trend growth in 2024,” Jadrosich says.
Bank of America has a “buy” rating and $90 price target for TREX stock.
Union Pacific (UNP)
Forward P/E Ratio
21.3
Price/Sales Ratio
6.1
3-Year Avg. Annualized Revenue Growth
4.6%
21.3
6.1
4.6%
Why We Picked It
Union Pacific operates a network of more than 32,000 miles of railroad tracks in 23 states in the western two-thirds of the U.S.
Analyst Ken Hoexter says Union Pacific’s ongoing network overhaul will allow the company to improve its service quality, positioning the company to operate more efficiently and gain market share. Hoexter says new CEO and precision-scheduled-railroading, or PSR, expert Jim Vena is already having a positive impact on Union Pacific’s operating metrics since taking over the position in August 2023. Hoexter projects Union Pacific will achieve a 59% operating ratio in 2024, up 3.2% from 2023 levels.
“Given the improving backdrop, accelerating share gains driven by its improved service and solid operating leverage in its best-in-class rail franchise, we see outsized earnings potential for Union Pacific,” he says.
Bank of America has a “buy” rating and $271 price target for UNP stock.
*All data sourced from Morningstar and Bank of America analyst reports, current as of January 25, 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 other types of investments like bonds.
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
Pro Tip
“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.
Frequently Asked Question (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 and investment goals.
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.”
Next Up In Investing
- Exchange Traded Funds: What Are ETFs?
- How To Invest In ETFs
- Investing Basics: How To Buy ETFs
- Understanding How Value Investing Works
- Growth vs Value Investing: Which Is Best For You?
- Investing Basics: Large-Cap Stocks
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Now, let's dive into the information related to the concepts used in the article you provided.
Bank of America's Top 10 U.S. Ideas List
The article mentions Bank of America's Top 10 U.S. Ideas list, which is compiled by the bank's equity analyst team at the beginning of each quarter. The list includes the bank's highest-conviction stock ideas for the quarter based on fundamental analysis [[1]].
Factors Considered in Stock Selection
When buying stocks, it is important to consider various factors that can impact the performance of a company. Some of the key factors to watch out for include:
- Fundamentals: Researching a company's financial statements, such as revenue, earnings, profit margins, and debt-to-equity ratio, can help determine its overall financial health [[2]].
- Industry trends: Understanding trends in the company's industry through research reports, news, and analyst predictions can provide insights into the industry's direction [[2]].
- Management: Assessing the experience, track record, and decision-making of a company's management team can significantly impact its success [[2]].
- Competitive advantage: Identifying companies with a competitive advantage, such as strong brand recognition or unique intellectual property, can give them an edge in the market [[2]].
- Valuation: Comparing a stock's valuation to similar companies in the industry using metrics like price-to-earnings ratio, price-to-sales ratio, and price-to-book ratio can help assess its value [[2]].
- Dividend yield: Considering stocks that offer a decent dividend yield can contribute to the overall return on investment [[2]].
- Risks: Evaluating risks associated with a stock, such as debt levels, industry volatility, and geopolitical risks, is crucial before making an investment decision [[2]].
Different Ways to Invest in Stocks
There are several ways to invest in stocks, including:
- Investing directly in individual stocks on the stock market: This involves buying and selling stocks through a brokerage account [[3]].
- Indirectly investing via traditional mutual funds and ETFs: Mutual funds and exchange-traded funds (ETFs) pool money from multiple investors to invest in a diversified portfolio of stocks [[3]].
- Indirectly investing via closed-end funds: Closed-end funds issue a fixed number of shares and trade on stock exchanges like individual stocks [[3]].
- Investing indirectly through collective investment funds: Collective investment funds, often run by banks and trust companies, are part of workplace retirement plans or stock bonus plans [[3]].
- Investing indirectly through derivatives: Derivatives are financial contracts, such as futures contracts, with values based on underlying assets [[3]].
Alternatives to Investing in the Stock Market
If your priority is growth of principal and you are looking for alternative investments, some options include:
- Hedge funds: These are investment funds that pool capital from accredited individuals or institutional investors and employ various strategies to generate returns [[4]].
- Private real estate: Investing in real estate properties or real estate investment trusts (REITs) can provide exposure to the real estate market [[4]].
- Collectibles: Investing in collectible items, such as art, antiques, or rare coins, can offer potential returns based on their rarity and demand [[4]].
- Private equity: Private equity involves investing in privately-held companies or participating in buyouts of public companies with the aim of generating returns [[4]].
- Cryptocurrencies: Investing in digital currencies like Bitcoin or Ethereum can provide exposure to the cryptocurrency market [[4]].
- Private debt and venture debt: Investing in debt instruments issued by private companies or startups can offer fixed income returns [[4]].
- Derivatives: Derivatives, such as options or futures contracts, allow investors to speculate on the price movements of underlying assets without owning them directly [[4]].
- Commodities: Investing in commodities like oil, precious metals, or agricultural products can provide exposure to the commodity market [[4]].
Please note that the information provided here is a general overview and not personalized financial advice. It's important to conduct thorough research and consider your individual financial goals and risk tolerance before making any investment decisions.
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