Bank of America has created a list of stocks to consider as the market continues its correction, including Applied Materials (AMAT), Home Depot (HD) and Penn National Gaming (PENN).
BofA screened from the 196 stocks lagging the S&P 500 year to date for:
· Companies it rates as buy,
· Companies that have higher free cash flow-to-enterprise value than their sector peers,
· Companies that are “labor-light” relative to their sector peers, and
· Stocks that fail to exhibit statistically strong relationships with interest rates.
“We extract 15 companies with strong fundamentals and less macro vulnerability,” write BofA strategists led by Savita Subramanian.
The other 12 stocks are Broadcom (AVGO), CarMax (KMX), Cisco Systems (CSCO), CSX Corp. (CSX), D.R. Horton (DHI), KLA (KLAC), Lam Research (LRCX), Lowe’s (LOW), Monster Beverage (MNST), NRG Energy (NRG), Pfizer (PFE) and Teradyne (TER).
Morningstar analyst Abhinav Davuluri likes Applied Materials’ fundamentals, assigning it a wide moat.
“Applied Materials is the top vendor of semiconductor fabrication tools,” he wrote in a November commentary. “While competitors tend to specialize in a single core competency, Applied competes in almost every key equipment segment with the exception of photolithography.
“As a result, all major chipmakers develop strong relationships with Applied that span multiple process steps of their chip production. The firm is the dominant player in the material deposition and removal areas, among others.”
Davuluri puts fair value for Applied Materials at $142. The stock closed Tuesday at $132.99, down 5%.
