Analysts at Bank of America unveiled this week a slew of must-own stocks for 2023. The firm said these companies are attractive and offer defensive characteristics in a time of uncertainty. CNBC Pro combed through recent research to find Bank of America’s ‘best-in-class” stocks heading into next year. They include: JPMorgan Chase , Eli Lilly , Bumble, Broadcom and O’Reilly Automotive. Bumble “A highly regarded brand in an ultra-competitive industry,” is how analyst Nat Schindler described the dating app company this week. The firm started coverage of Bumble with a buy rating, saying it has strong fundamentals with room for multiple expansion. Schindler also said the company is somewhat of a safe haven stock in the event that consumer spending decreases. While Match remains at the forefront of dating industry apps, Schindler said Bumble has the chops to quickly close the gap. “BMBL has grown its US & Canada market share by +19ppts since 2017 with potential to replicate its success internationally through best-in-class marketing and product innovation,” he wrote. Shares are down 32% this year and are attractive at current levels, the firm said. “We think the company presents a strong medium-term investment case given healthy margins along with opportunities to enter and develop markets,” he said. JPMorgan Chase Analyst Ebrahim Poonawala is feeling more bullish about shares of JPMorgan Chase heading into 2023. The firm recently met with JPMorgan Chase management and came away confident that the stock has plenty more room to run. Poonawala said the banking giant is firing on all cylinders, naming a host of attractive characteristics that the firm said should be attractive to every investor. They include “credit defensibility, a diversified revenue mix, market share opportunities, differentiated tech strategy, internal capital generation,” among others. Taken together, the firm sees these catalysts as key “drivers of superior earnings growth and stock performance” next year and beyond. In addition, management’s execution has been “top notch” and impressive. Shares are down over 18% this year, but Poonawala upped his price target to $145 per share from $132. “While the stock has significantly outperformed peers QTD, we consider JPMorgan as best-of-breed for investors looking to maintain/add exposure to bank stocks,” he said. Eli Lilly The pipeline is robust and growing quickly for the biopharma company, according to analyst Geoff Meacham. “Although 2022 has been a year of modest growth for Lilly, shares have outperformed based largely on tirzepatide’s peak potential,” he wrote. Tirzepatide is the Eli Lilly’s much-touted diabetes drug which the company hopes will gain approval for weight loss next year. The firm admitted the stock is best for patient investors with a longer time horizon, but said shares are too attractive to ignore at current levels. “Normally for a stock trading at > 35x 2023 estimates, that would be a disappointment, but in our view ,the Lilly story is more about substantial long-term upside in 2024+, rather than 2023 trends,” he said. Meacham said other regulatory submissions are on deck and set the state for a “meaningful inflection” late next year, but it’s tirzepatide that should have investors’ attention right now. “Given this backdrop, Lilly remains a top pick, as we see its new product cycle / long term growth as clearly best-in-class,” the firm said. Shares are up 30% this year. Bumble “A highly regarded brand in an ultra-competitive industry. … BMBL has grown its US & Canada market share by +19ppts since 2017 with potential to replicate its success internationally through best-in-class marketing and product innovation. … We think the company presents a strong medium-term investment case given healthy margins along with opportunities to enter and develop markets.” Broadcom “High-quality offense + defense in products, with best-in-class FCF. … Overall, we continue believe AVGO is attractive given low valuation best-in-class FCF (~49-50%), strong backlog, pricing power and premium assets. … We rate Broadcom Buy due to its high-quality diversified exposure to secular product cycles in the smartphone, cloud data center, telecom and enterprise storage markets.” JPMorgan “JPM’s credit defensibility, diversified revenue mix, market share opportunities, differentiated tech strategy, internal capital generation and top notch execution as drivers of superior earnings growth and stock performance. … While the stock has significantly outperformed peers QTD, we consider JPMorgan as best-of-breed for investors looking to maintain/add exposure to bank stocks with shares trading at 10x 2023 P/E and 1.7x YE23e TBV.” Eli Lilly “Although 2022 has been a year of modest growth for Lilly, shares have outperformed based largely on tirzepatide’s peak potential. … Normally for a stock trading at > 35x 2023 estimates, that would be a disappointment, but in our view ,the Lilly story is more about substantial LT upside in 2024+, rather than 2023 trends. … Given this backdrop, Lilly remains a top pick, as we see its new product cycle / LT growth as clearly best-in-class.” O’Reilly Automotive “Given O’Reilly’s attractive characteristics of 1) balanced DIY vs DIFM mix, 2) expected pace of store growth, and 3) above-average operating margin, we believe that a P/E multiple above the peer group historical average (10x-20x) is warranted. In the current consumer backdrop, we also expect investors to ascribe a premium to best-in-class retailers in non-discretionary product categories, such as ORLY.”
