Buy Disney, sell American Airlines among BofA's top 10 fourth quarter ideas

Oct. 03, 2022 12:37 PM ETThe Walt Disney Company (DIS), AALSPY, ETR, OVV, MAT, CNI, IT, DXCM, ZTS, ARES, CN, SP500By: Kim Khan, SA News Editor30 Comments

Walt Disney Studios, Paris


BofA Securities picked nine longs and one short in its list of best alpha-generating ideas for Q4 out Monday.

"This list represents some of our fundamental equity analysts’ highest conviction ideas for the 4th quarter," strategist Anthony Cassamassino said. "Ideas that we think should be on your list - and one you should consider shorting." (See the picks for Q3.)

On the overall market, strategist Michael Hartnett remains tactically bearish and advises investors to "'nibble at 3600, bite at 3300, gorge at 3000' on the S&P 500 (SP500) (SPY)."

All the stocks are rated Buy except Underperform-rated American Airlines (NASDAQ:AAL):

  1. Ares Management (ARES), price target $81. "ARES is a high growth, high yield (fixed dividend), capital lite business with attractive incremental margins, pricing stability, no net debt and is now a C-Corp which is included in major indexes."
  2. Canadian National Railway (CNI) (CNR-CA), $135. "Canadian National (CN) can be one of the leading performers within the group, particularly in 4Q given the rebounding Canadian grain crop (after last year’s harvest was well below 5-year average crop size)."
  3. DexCom (DXCM), $105. "US growth in 2H is expected to accelerate after record new patient starts in Q2 and DXCM’s new product, G7, should be approved by year end."
  4. Entergy (ETR), $135. "The company has underappreciated exposure to renewables incentives detailed in the recently enacted Inflation Reduction Act."
  5. Gartner (IT), $340. "If there’s a near-term economic slump, we think Gartner’s fundamentals should hold up well given the recession-resilient nature of its business."
  6. Mattel (MAT), $31. "We expect multiple expansion as the company continues to grow by leveraging its IP through content to drive toy and game sales."
  7. Ovintiv (OVV), $70. "OVV meets the high hurdle of a material rate of change in free cash flow, with a discounted valuation and portfolio mix favorably leveraged to what we believe is an ongoing structural shift in US natural gas."
  8. Walt Disney (NYSE:DIS), $127. "We believe DIS remains well positioned to navigate any potential macro uncertainty driven by: (1) continued robust theme park demand with several levers for future growth, (2) price increases for Disney+/Hulu, (3) the roll-out of Disney+’s ad-supported tier on December 8th, and (4) the release of Black Panther 2 in November and Avatar 2 in December."
  9. Zoetis (ZTS), $225. "We expect Zoetis to post another quarter of best-in-breed operational growth driven by continued strength in key new products and solid execution."
  10. American Airlines (AAL), $8. "In a rising interest rate environment, AAL is not just exposed to rate pressures (100 bps increase in rates lowers its full year EPS by 3-5%) but also earnings multiple risk as it trades at a 34% premium to the group (26% premium to DAL/UAL)."

SA contributor Daniel P. Varga recently took a look at AAL vs. LUV.

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