We’ve had some mixed news from the market recently. The S&P 500 ended April with a loss of 4%, its first monthly loss after five straight months of gains. But the month of May started with trading gains and the 1Q24 earnings season was better than expected.
Additionally, the Federal Reserve has indicated it will keep interest rates “higher for longer” as long as inflation remains stubborn. A rate cut this year is still considered possible, but probably not before the fourth quarter of the year.
As the situation evolves, Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, sees reason for optimism. “I think we’re in for a soft landing, with a reasonable market environment, maybe better growth than we’re used to, higher interest rates and slightly higher inflation,” she said.
Subramanian’s outlook gives us a template for profits; It is sticking to its S&P target of 5,400 by year-end, an increase of 5.5% from current levels.
Bank of America analysts are embracing their bullish sentiment and urging investors to take advantage of opportunities, focusing on two specific stocks. After running both tickers through the TipRanks database, it’s clear that the rest of the Street agrees, giving each a Strong Buy consensus rating. Let’s take a closer look.
KKR & Co. (KKR)
We are starting into the world of global finance and asset management with KKR & Company. KKR is an investment firm and asset manager that works with clients around the world and transfers third-party capital into the capital markets. The Company provides capital resources to corporate clients and works with them on debt and equity investments, public underwriting of new market businesses and other financial transactions. KKR deploys long-term capital and creates a solid return base for its own investors and shareholders.
Some numbers will show the scale of KKR’s business. As of March 31, the company had $578 billion in total assets under management, including approximately $183 billion in private equity investments, $260 billion in loans, $61 billion in infrastructure and $71 billion dollars in real estate. Total assets under management increased 13% year over year and included $31 billion in new capital raised in Q1 2024.
KKR also reported solid profits in the first quarter. The company’s adjusted net income was $864 million, or $0.97 per share, an EPS figure that was 2 cents better than expected and up 20% year-over-year. In another key metric, fee-related earnings, KKR earned $669 million, or $0.75 per share, up 22% year-over-year.
This stock falls under Craig Siegenthaler’s coverage for Bank of America, and the 5-star analyst is impressed with the company’s overall position and future prospects. He writes, “We reiterate our Buy rating as we are bullish on KKR’s fundraising cycle, the asymmetric upside potential of its P&L recovery and the potential for a rise in the S&P 500 Index. KKR’s business is highly diversified and offers robust scaling opportunities across multiple verticals (infrastructure, real estate, credit), overall strong investment performance, core competency in product innovation and a world-class retail banking business in Asia. Additionally, KKR’s business model is the most aggressive in the group, which resulted in its EPS revisions underperforming in the 2022 bear market. However, we believe this will provide a significant earnings growth accelerator as markets continue to recover.”
This Buy rating comes with a $134 price target, suggesting 41% one-year upside potential. (To view Siegenthaler’s track record, click here)
Bulls are in the majority for this stock, as evidenced by the 12 analyst ratings – including 11 Buys and 1 Hold – that support the Strong Buy consensus rating. The shares are trading for $95.01 and their average price target of $116.50 implies a gain of 22.5% for the coming year. (See KKR stock forecast)
Avis Budget Group (AUTOMOBILE)
Moving from global finance to the car rental business, we look at Avis Budget Group. This company is one of the world’s largest car rental companies and has several brands with global reach. Avis Budget’s brands include its eponymous car rental subsidiaries, as well as Payless Car Rental and Zipcar. Together, these companies form a network with activities in 180 countries. Avis Budget employs over 24,000 people at more than 10,000 locations. The company has a rental fleet of approximately 655,000 vehicles and generated revenue of $12 billion in calendar year 2023.
Although this company has a strong position in the car rental niche, it has also experienced difficult times this year. The used car market is facing headwinds from oversupply and high interest rates. This hit Avi’s budget recently as the company sold a record number of used vehicles.
In the company’s most recent quarterly financial results for Q1 2024, the company reported a 5% increase in rental days compared to the same quarter last year. This resulted in quarterly revenue of $2.6 billion, exceeding forecast by $80 million. On the bottom line, Avis Budget posted a net EPS loss of $3.21, 33 cents per share less than expected.
Despite the profit loss, Bank of America’s John Babcock remains bullish on the car rental business and explains why: “We reiterate our Buy rating on CAR.” The company has historically been the stronger and better performing U.S. public car rental company. We believe the stock is trading at an attractive valuation and risks related to higher fleet costs appear to exist in the stock. Additionally, CAR is expected to see an earnings recovery in 2025, supported by solid volume growth, relatively stable pricing and its productivity and efficiency efforts. In addition, it could gain shares in HTZ, which could be challenged by its liquidity position.”
Babcock’s “Buy” rating on the stock is complemented by a $140 price target that suggests a one-year upside potential of 21%. (To view Babcock’s track record, click here)
There are 8 current analyst ratings on CAR stock, divided into 6 “Buy” and 2 “Hold” ratings, resulting in a “Strong Buy” consensus rating. The stock has an average price target of $169.5, representing a 46.5% upside from the current share price of $115.6. (See CAR stock forecast)
To find good stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.