When every rally attempt eventually fails, market veterans know that it is likely that the path of least resistance for the stock market is lower. While a bounce here and there is not unusual, the market is very expensive. With September here, we also enter the weakest time of the year for the equity markets. Another 75-basis-point rate increase in the three weeks is likely, and the storm clouds are gathering.
The highest inflation in 41 years, the ongoing war between Russia and Ukraine, continued supply-chain issues and a host of additional woes continue to pressure the equity markets. Many investors are getting nervous, especially with former high-growth sectors like homebuilding starting to unwind. The mounting negatives and the historical data that point to more downside suggest it is high time to move to safer equity positions that pay dividends.
So, we screened the Goldman Sachs Conviction List looking for ideas for concerned investors that have a defensive posture and pay solid dividends. The reason they make sense now is that they are the very best ideas from one of the top investment banks, not just on Wall Street, but around the world.
Yet, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
The company posted very solid second-quarter results, and interest rate increases are welcomed by banks. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Banks, almost regardless of size, are a solid idea as the potential for higher net interest income on portfolio loans to homeowners, farmers and small business owners is one of the strongest tailwinds provided to financial firms in a risingate environment. That is, they can achieve better returns on their cash balances while achieving higher rates of returns from customers who come in for loans.
Bank of America stock investors receive a 2.60% dividend. The Goldman Sachs target price of $42 is near the $42.41 consensus target. Wednesday’s closing share price was $33.61.
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