The Federal Reserve’s FOMC committee is set to meet today, and with the pace of inflation having slowed to an annualized rate of 2.5%, the consensus view is that the central bank will begin cutting rates. The Fed has kept its key funds rate in the 5.25% to 5.50% range since July last year, in response to a generational surge in inflation.
Most Fed watchers expect Fed governors to approve a cut of 25 basis points, or 0.25%. While modest, that would mark the end of a 14-month-long policy tightening.
For Bank of America, the Fed meeting is likely to serve as a catalyst for markets. “This week, the Fed is expected to officially kick off its rate-cutting cycle after its longest stay at the peak of a hiking cycle in its history,” noted the bank’s equity strategist Ohsung Kwon. “We expect the Fed to cut rates by an average of 25 basis points, but markets see a relatively high probability of a 50 basis point cut. In our view, the data does not justify a 50 basis point cut as activity remains healthy. That said, market uncertainty over 25 or 50 basis points means the meeting will be a catalyst for trading…”
Meanwhile, against this backdrop, Bank of America analysts are bullish on two stocks in particular, forecasting double-digit upside potential for each. We’ve used the TipRanks database to see if these picks match the views of Wall Street analysts. Let’s take a closer look.
Hewlett Packard Company (Energy Efficiency)
The first BofA-backed stock on our list is Hewlett Packard Enterprise, a company that was spun off from Hewlett-Packard in 2015. HPE inherited the server, storage, and networking businesses from its parent company and took them public on its own. The company now offers a range of solutions for everything from data collection and intelligence to data security, edge-to-cloud computing, and hybrid cloud operations. These are all services in high demand by businesses and AI developers, and the rise of AI promises a boon for HPE.
In a transaction that is sure to attract a lot of attention, HPE is in the process of completing its acquisition of Juniper Networks. The $14 billion deal is expected to add to HPE’s cloud and AI-native networking capabilities and be accretive to earnings in the first year after closing. The Juniper deal is expected to close before the end of the year.
Earlier this year, HPE added a new CFO, Marie Myers, to its team, who previously worked at the firm’s parent company. Myers has a reputation for driving innovation and performance, and her role at HPE includes reducing costs and improving efficiency.
On the financial side, HPE’s strong AI product lines and a continued cyclical improvement in the AI industry outlook proved to be a revenue driver in the recently reported fiscal third quarter of 2024 (July quarter). The company’s top line increased just over 10% year over year to $7.7 billion, beating estimates by $40 million. Overall, HPE earned 50 cents per share on a non-GAAP basis, beating forecasts by 3 cents per share.
Investors looking for yield should note that HPE has also announced its next dividend payment of 13 cents per common share. This payment, scheduled for October 18, annualizes to 52 cents per common share and offers a solid forward yield of 2.9%.
For Bank of America 5-star analyst Wamsi Mohan, this stock brings several strong upsides. In his review, Mohan spells them out clearly: “We view the stock as attractive as we see opportunity for (1) significant cost cuts driven by new CFO Marie Myers with a proven track record at HPQ, (2) cyclical recovery in servers, storage, and particularly networking, (3) revenue and increased cost synergies with the upcoming Juniper acquisition, (4) recovery of high-performance computing (HPC) margin from depressed levels, and (5) benefit from AI as enterprise/sovereign demand increases.”
These factors support Mohan’s upgrade from Neutral to Buy. His $24 price target implies the stock will gain 32% over the next year. (To watch Mohan’s track record, click here)
Now moving to the rest of Wall Street, where HPE has a Moderate Buy consensus rating based on 10 reviews including 3 Buys and 7 Holds. Shares are trading at $18.20 and the average price target of $20.78 suggests a one-year upside potential of 14%. (See HPE Stock Forecast)
GE Vernova (VGE)
Next on our list of BofA-backed companies is another that originated as a spinoff from a large parent company. GE Vernova was formed as an independent company earlier this year, when parent company General Electric first merged and then spun off its GE Power and GE Renewable Energy divisions. GE Vernova is an electric power company that manufactures and supplies power equipment and provides support services. The company focuses on “green” technology and has a publicly stated goal of achieving carbon neutrality in its operations and facilities by 2030. GE Vernova’s customers generate approximately 25% of the world’s electricity, putting this green technology company in a position to lead the global transition to cleaner energy.
GE Vernova has 130 years of experience in the sector since the founding of the parent company. Today, the company has approximately 55,000 wind turbines and 7,000 gas turbines in operation and employs more than 75,000 people in more than 100 countries.
In addition to its wind and gas turbine technologies and products, GE Vernova also offers solutions for hydroelectric, nuclear and even steam power generation. All of these contribute to meeting the world’s need for electric power and each of them has different combinations of attributes to suit any imaginable situation. GEV’s hydropower solutions are currently used in more than 25% of the world’s installed hydroelectric generating capacity. The company’s services business has a 65% order backlog, which is expected to provide a steady cash flow in the future.
GE Vernova has released two sets of financial results since going public last spring. The most recent of the two, released in July, covered the second quarter of 2024 and showed revenue of $8.2 billion. While this missed the forecast by $60 million, it is important to note that the company also reported $11.8 billion in total orders, a metric that bodes well for the future. Overall, GE Vernova had earnings of $4.65 per share. The company’s cash balance was $5.8 billion, a significant increase from the $4.2 billion the firm had at the time of its spinoff.
Andrew Obin, another 5-star analyst at Bank of America, thinks this company shows plenty of underlying strength. He writes about its overall potential: “We believe GEV stock can deliver outperformance and outperformance for many quarters to come. We view the December 10 investor event as a positive catalyst. We expect management to raise its medium-term targets and possibly announce a buyback, given the buildup of excess cash. We maintain that US electric growth is poised to accelerate and GE Vernova has higher US exposure relative to its peers.”
Elaborating further, Obin adds: “Taking into account our estimates of higher growth and profitability for Gas Power Services, we are raising our 2025 Adjusted EBITDA guidance by $0.5 billion to $3.6 billion and for 2026 by $1.1 billion to $5.4 billion. Our guidance is 16% higher and 27% higher than current consensus, respectively.”
In Obin’s eyes, this is another stock that deserves a rating upgrade from Neutral to Buy. He complements that with a $300 price target to demonstrate his confidence in a one-year gain of 26.5%. (To watch Obin’s track record, click here)
Overall, this newly IPO stock has a Strong Buy consensus rating based on 13 recent reviews that break down to 12 Buys and 1 Hold. That said, considering the stock’s huge gains (up 73% over the past 6 months), the $238.23 average price target suggests the stock will remain range-bound for the time being. (See GEV Stock Forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.