'Mispriced' stocks like this solar name are too attractive to ignore, Bank of America says
Bank of America named a host of buy-rated stocks this week that it believes are significantly undervalued in the current market environment. The firm said it found several stocks that investors are overlooking as even as the market churns lower. CNBC Pro combed through recent Bank of America research to find stocks that it called underappreciated. They include: Kenvue, First Solar, ResMed , ESAB and ASML. ESAB The Swedish industrial company was initiated with a neutral rating earlier this year by analyst Sherif El-Sabbahy. Earlier this week, however, the bank lifted its rating to buy from neutral, saying ESAB is too attractive to ignore. El-Sabbahy says he sees "renewed appreciation" for ESAB's diverse portfolio and that the company is executing better than forecast. Further, the firm says consensus expectations are just too low. "ESAB has developed a consistent track record since its IPO," El-Sabbahy said. With so many "underappreciated growth vectors" and multiple long-term tailwinds, it's time to buy the shares, according to BofA. "In our view, ESAB is a mispriced asset and the discount to peers is likely to narrow with the upcoming [December] Investor Day as a catalyst," El-Sabbahy wrote. Shares are up 47% this year with room to move higher, the bank said. First Solar Analyst Julien Dumoulin-Smith is getting increasingly bullish on shares of the solar company. First Solar held an analyst day recently and Dumoulin-Smith said investors' worries are overblown. "In our view the stock should work on earnings revisions alone but management also addressed a growing perception that its technology is lagging peers," he wrote. BofA acknowledged that the analyst day was light on details including earnings per share guidance, but said it was full of spending plans and technology developments that should ease shareholder worries. "While this may screen as a disappointment for investors, we believe the company in effect confirmed lofty expectations on earnings potential; we expect further upside revisions to consensus here-forward," Dumoulin-Smith said. In addition, production and capacity have ramped up and Dumoulin-Smith reminded clients that First Solar is a major beneficiary of the Inflation Reduction Act. "We reiterate Buy with multiple checks on valuation, now including FSLR management's own view as driving a dislocation that's simply too attractive to ignore," Dumoulin-Smith said. Shares are down over 14% this month. ASML Stay calm and buy shares of the Dutch semiconductor equipment company, analyst Didier Scemama wrote in a recent note. The bank said ASML is the market leader in lithography tools necessary to make semiconductors. "ASML currently has a market share of close to 90%, which is a monopoly in next generation EUV lithography," he said, referring to extreme ultraviolet lithography technology. But Scemama also conceded that the near term may be bumpy. ASML's 2025-2030 targets are at risk, he says, as the current macroeconomic climate seems very uncertain. A slowing smartphone and personal computer recovery and a longer memory downturn than anticipated may weigh on the stock near term. Still, BofA says investors should take advantage of the underperformance and buy the dip. "Given attractive FY25 valuation, we reiterate our Buy rating given we think the long-term growth story remains intact," the analyst wrote. The stock is down 16% in the third quarter. ESAB "ESAB is executing better than expected (leverage falling, margin expanding, growth outperforming) and we have a renewed appreciation of its portfolio. ... ESAB has developed a consistent track record since its IPO. ... underappreciated growth vectors. ... In our view, ESAB is a mispriced asset and the discount to peers is likely to narrow with the upcoming [December] Investor Day as a catalyst." First Solar "In our view the stock should work on earnings revisions alone but mgmt also addressed a growing perception that its technology is lagging peers. ... While this may screen as a disappointment for investors, we believe the company in effect confirmed lofty expectations on earnings potential; we expect further upside revisions to consensus here-forward. ... We reiterate Buy with multiple checks on valuation, now including FSLR management's own view as driving a dislocation that's simply too attractive to ignore." ASML "Given attractive FY25 valuation, we reiterate our Buy rating given we think the long-term growth story remains intact. ... ASML is the market leader in lithography tools, a critical part of the semiconductor manufacturing process enabling 'Moore's law.' ... ASML currently has a market share of close to 90%, which is a monopoly in next generation EUV lithography." Kenvue "Stock weakness creates attractive buying opportunity. ... We value KVUE with a 16.5x CY24e EBITDA multiple, a premium to its current valuation of 12x, and a slight premium to the average of [household product company] peers (CHD, CL, CLX, PG) at 16x. KVUE is prioritizing its capital allocation with: 1) investing in brands, 2) returning cash to shareholders in dividends beginning Q3, 3) deleveraging, 4) evaluating potential tuck-in acquisitions." ResMed "RMD oversold on GLP-1 risk. RMD shares are down 56% since Jan22. Our three-scenario analysis implies an -8% to -21% GLP-1 (Glucagon like peptide 1) impact on RMD's share price; significantly lower than the share price fall. We believe RMD has been oversold and offers an enhanced buying opportunity. It is currently trading at 20x P/E."