By Sam Boughedda
BofA and Wells Fargo released notes outlining their top 10 ideas for the second quarter on Monday, with analysts on both sides picking out Lowe's Companies (NYSE:LOW) as one to watch for potential upside.
Analysts at Wells Fargo said the picks represent seven sectors where they see significant second quarter catalysts that could drive meaningful upside or downside.
Intuit (NASDAQ:INTU), Spotify (NYSE:SPOT), Western Alliance Bancorporation (NYSE:WAL), SLB (NYSE:SLB), Eli Lilly & Co. (NYSE:LLY), Lowe's Cos., Scotts Miracle-Gro (NYSE:SMG), and Academy Sports and Outdoor (NASDAQ:ASO) made it onto the list for Overweight tactical ideas at Wells Fargo. Underweight ideas are Lockheed Martin (NYSE:LMT) and Paramount Global (NASDAQ:PARA).
The firm said Intuit is well-positioned, Spotify has a strong long-term financial outlook, and Eli Lilly's Donanemab has an attractive risk/reward. For LMT, Wells Fargo analysts state that the stock trades at a premium, while they believe Paramount "is in the cross-hairs of Media sector challenges."
In addition, Wells Fargo also believes Lowe's shares are too cheap. "We see easing multi-year compares, leverage to warmer weather in April/May & narrowing comp/margin gap vs. HD. Falling rates are a plus," the firm said.
Meanwhile, BofA analysts picked out CubeSmart (NYSE:CUBE), FedEx (NYSE:FDX), Flowserve (NYSE:FLS), Lamb Weston (NYSE:LW), Lowe's, Netflix (NASDAQ:NFLX), Progressive Corp. (NYSE:PGR), and UnitedHealth Group (NYSE:UNH) as their Buy ideas for the quarter, with CarMax (NYSE:KMX) and United Airlines (NASDAQ:UAL) their Underperform ideas.
BofA said CubeSmart has a high-quality self-storage portfolio, they expect accelerating cost-cutting efforts at FedEx, and that demand will remain solid for Flowserve.
On Netflix, BofA believes it will outperform based on "four main drivers: (1) a crackdown on password sharing, (2) the introduction of a value-oriented, ad-supported tier which expands TAM and monetization, (3) an inflection point in free cash flow, and (4) a significant subscriber runway accelerating by the shift from linear to streaming."
On Lowe's, the firms wrote that while recent spending trends across consumer categories have declined on a YoY basis through March, they expect them to come out of the trough from April through June and beyond.
"Meanwhile, Lowe's will continue to execute on its long-term margin improvement strategy, likely further narrowing the margin gap with rival Home Depot, which is in the midst of a heavy investment cycle," BofA analysts believe.