Last year’s remarkable rally was largely built boosted by tech stocks broadly, and the ” Magnificent Seven ” tech titans and other artificial intelligence-adjacent names specifically. But this year, Wall Street investors are widely predicting that the stock market’s run will broaden out, with many small- and mid-cap names also emerging as winners. That has already happened in the latest leg of the market’s run. Since the October low, the Russell 2000 index of small-cap stocks has gained nearly 23% while the S & P 500 is almost 20% higher. Against this backdrop, Bank of America on Monday released a list of the best small- and mid-cap ideas for 2024. A basket of similar stocks chosen in January 2023 had a total return, including reinvested dividends, of 12.8% through December 2023, versus 9.9% for the Russell 2500 of small- and mid-cap stocks. To be included on the latest BofA list, all the stocks had to be rated buy, either have a market capitalization between $1 billion and $15 billion or belong to one of the major U.S. small/mid-cap indexes and have an average daily trading volume of at least $20 million. Strategist Jill Carey Hall added that this year’s basket of 31 stocks has an average 12-month potential upside of 29%, and is slightly tilted toward value stocks over growth. “We prefer Value over Growth in ’24 given an accelerating profits cycle, Fed rate cuts, cheaper relative valuations and less duration risk/fewer non-earners in the Value index. Nearly 90% of the stocks on our list also fit our preference for SMEARNERS, or SMID cap earners (profitable companies),” the analyst added. Here are a few of the stocks included on the BofA list: Body care retailer Bath & Body Works , with a market capitalization of $9.6 billion, made the screen. Bank of America analyst Lorraine Hutchinson sees potential upside of 13% for the stock from the Jan. 26 close, calling it one of the “most compelling” names in her coverage universe. “We expect 2H24 to reap most of the benefits of new category growth, customer acquisition, unit growth, and avg. unit retail (AUR) support. It is also one of the few retailers in our coverage with remaining raw material cost benefits into 2024,” Hutchinson wrote. Ultimately, BofA expects these tailwinds to boost the company’s sales recovery, profit margin expansion and earnings and cash growth. Shares of Bath & Body Works have trailed the market, rising 2.4% in 2023 and 0.4% so far in 2024. Despite plunging 60% in 2023, biopharma stock Amylyx Pharmaceuticals could rally an eye-watering 173% in the next 12 months, according to analyst Geoff Meacham. Amylyx, which is developing therapies to treat ALS, or Lou Gehrig’s disease, is already up more than 7% in January. “AMLX shares have come down significantly over the past year after seeing a slowdown of patient enrollment in the U.S. and rejection from EU for approval given questions on drug’s benefit to patients in slowing disease progression and extending survival,” he noted. Meacham added that the stock is now considered “one of the top M & A targets this year,” on the basis of confirmatory trial showing positive results. Cybersecurity firm CyberArk is one of the larger companies on BofA’s screen, with a market capitalization of nearly $10 billion. The stock soared 69% in 2023 and is up another 7.8% so far in 2024, but could potentially gain another 10%, according to analyst Tal Liani. “The company is a market leader in a critical area of cybersecurity spend, and secular tailwinds should support continued acceleration of growth through CY26,” the analyst wrote. “The current TAM [total addressable market] for PAM [privileged access management] is $20bn, up from $9bn in 2020, and we highlight that the overall market penetration is less than 5%, leaving plenty of room for growth.” CyberArk has historically traded at a discount to its peers, Liani added. Bank of America also named United Airlines one of its top SMID ideas for 2024. The Chicago-based carrier has also underperformed, rising 9.4% in 2023 and 2% so far in 2024, hurt most recently by the grounding of Boeing 737 Max 9s after a door panel accident in early January. Shares rose last week after United’s fourth-quarter earnings and revenue topped analysts’ estimates. Analyst Andrew Didora forecasts that United could climb another 41%. “We see a valuation disconnect vs UAL’s execution and its more favorable leverage outlook than we originally expected. While industry risks remain and capex is above historical norms, UAL has outperformed the industry on revenues, can maintain about 2.5x leverage through this capex cycle, and trades towards the low end of historical valuations,” Didora wrote. Other names on Bank of America’s list of SMID picks included e-commerce retailer Wayfair and aircraft leasing company Air Lease . — CNBC’s Michael Bloom contributed to this report.
This story originally appeared on CNBC
