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With the first half of 2024 wrapped up, Bank of America (BofA) securities analysts provide a list of top-performing companies - what they describe as the "best of breed" - for investors to consider going into the third quarter of this year. These companies exhibit solid fundamentals in their respective industries, and specifically boast a strong earnings history, with forecasts calling for future growth.
Notably, many of these companies are set to outperform due to significant investments in artificial intelligence (AI). Leveraging AI for enhanced productivity and monetizing AI-powered products is a growing trend across various sectors, including cybersecurity, e-commerce, industrials, and communication services.
These top-quality companies have shown noticeable resilience to the various market headwinds in the past few years, and BofA suggests they not only offer investors the prospect of long-term growth, but also some protection from potential short-term volatility. For investors seeking standout investment ideas this July, here are 3 highly rated stocks from BofA's best-in-class lineup.
#1. Advanced Micro Devices
Based in California, Advanced Micro Devices (AMD) is a semiconductor giant that makes computer processors and graphic cards for various markets. The company's AI-powered chips are used for gaming, PCs, and data solutions.
AMD's commitment to innovation extends beyond hardware. They actively collaborate with software developers, researchers, and industry partners to optimize performance, enhance security, and drive AI and machine learning advancements. AMD is considered secondary to Nvidia in the AI chip market. While slightly less powerful than Nvidia's, its offering is more affordable. The company has a huge market cap of $259 billion.
Despite a turbulent 2022, where AMD stock plummeted by over 60%, the company made a remarkable turnaround in 2023, with a surge of more than 100%, driven by strong earnings results.
Shares of AMD are still climbing, up 10% this year and trading at 48 times forward earnings, which is still cheaper than its peers, such as Nvidia (NVDA). I believe the stock has significant potential to excel and provide substantial capital appreciation for investors.
AMD has delivered immense sales growth in the past five years, surging from $6.7 billion in 2019 to $22.6 billion last year. The exponential top-line growth was driven by increasing demand for AI chips.
In the first quarter of this year, the company reported revenue of $5.4 billion, a 2.2% year-over-year (YOY) increase. Similarly, net income rose to $123 million, reversing a year-ago loss. Most impressively, net cash flow swelled over by 125%, hitting $257 million. These results draw a clear picture of the company's robust growth and sustainability.
AMD has a solid reputation for innovative chips enhanced with the power of AI. The new MI350 series, expected to debut in 2025, is predicted to offer a 35-fold improvement in AI inference performance and rival Nvidia's B-Series platforms. Meanwhile, the MI400 series, slated for 2026, will utilize a new generation of CDNA architecture known as “Next” and will challenge Nvidia's R-Series platforms.
Plus, the recent release of the AMD Radeon RX 7600 XT graphics card is another major catalyst for its stock, which is expected to handle the challenging memory requirements for AI workloads. Also, the release of its next-generation Ryzen CPU, based on AMD's AMD 8000 Zen 5 architecture, is in the pipeline, another game-changer for the company.
Looking ahead, AMD is projected to achieve impressive growth rates in the upcoming years. Earnings and revenue are expected to increase by 37.2% and 16.6% annually, respectively. Additionally, EPS is forecasted to grow at a rate of 37.6% per year, with a projected return on equity of 14.8%.
Wall Street analysts have taken a bullish stance on AMD stock. The 35 analysts in coverage have assigned a consensus rating of "strong buy," with a mean price target of $193.84. This indicates that the stock has about 19.5% upside potential from its current price.
#2. Shopify
Based in Ottawa, Shopify (SHOP) is a well-known e-commerce company recognized for its innovative and user-centric platform, which helps users effortlessly build, customize, and scale their online stores. The company also offers related solutions for logistics payments and marketing.
Additionally, Shopify provides B2B opportunities to customers, such as custom catalogs and wholesale pricing. As e-commerce rapidly evolves, Shopify's cutting-edge tools and services strategically position the company for ongoing growth. Additionally, SHOP represents approximately 3.3% of Cathie Wood's flagship Ark Innovation ETF (ARKK).
Valued at $85.5 billion by market cap, shares of Shopify have gained just 2.2% in the past year. However, the firm showed a strong recovery last month, with a 17% gain off its late-May lows fueled by impressive growth in revenue and Gross Merchandise Volume (GMV).
In Q1 2024, the company reported a solid earnings print, beating analysts' expectations from top to bottom. Revenue reached $1.86 billion, a 23% increase from the same quarter last year. Gross Merchandise Volume (GMV), a key metric for the platform, jumped by 23% to $60.9 billion.
Despite an increase in revenue, the company swallowed a net loss of 21 cents per share, reversing the net income of 5 cents per share a year ago. However, it managed to post adjusted earnings per share of 20 cents, beating analysts' expectations by 18%.
Overwhelmingly, Shopify anticipates continued growth fueled by the expanding adoption of e-commerce. EPS is expected to grow by 144% this year and at a rate of 32.7% in fiscal 2025, while the forecasted return on equity stands at 19.5% over the next three years.
Overall, analysts are positive, rating Shopify stock as a "moderate buy" with a mean price target of $75.99. That indicates a 15% upside potential from the current price.
#3. Veeva Systems
Based in California, Veeva Systems (VEEV) is one of the leading cloud computing companies, specializing in software for the global life sciences industry. The company offers industry-specific customer relationship management (CRM) and content management solutions, helping pharmaceutical and biotechnology companies streamline operations and compliance.
Investors looking to invest in the cloud industry should add this one to their portfolio, as the company is maturing rapidly. Veeva's market capitalization currently stands at $29.9 billion.
Last year was rough for Veeva, which dipped by 8%, lagging behind the S&P 500 Index's ($SPX) gain of 25%. The shares are off 4% in 2024, and are trading at 45 times forward earnings ratio and 11 times forward sales, which is relatively inexpensive compared to its historical valuations.
In April, Veeva delivered strong earnings results for the first quarter of 2024, where revenue climbed to $650 million, up by 23.5% from last year. Also, the company's adjusted EBITDA hit $161 million, a 128% YOY increase. Earnings per share came in at $1.50, beating expectations by 8 cents.
Arguably, the most impressive metric is that the company's net cash flow increased by over 370% from the previous quarter, hitting $493 million. This remarkable surge in cash flow is a testament to Veeva's efficient operations, positioning the company for the long term.
Veeva is also investing in AI to enhance its business. Recently, it launched the AI Partner Program to equip partners with cutting-edge technology and comprehensive support to integrate generative AI solutions with Veeva Vault applications seamlessly. This program is a targeted approach to implementing AI within the life sciences industry.
Analysts are optimistic about VEEV stock, and 23 in coverage have given it an average rating of "moderate buy" with a mean price target of $220.50. This indicates that the stock has 20.5% upside potential from its current price.
