Bank of America takes a bullish stance on these two stocks

The Federal Reserve’s FOMC will meet today, and with the pace of inflation down to an annualized rate of 2.5%, conventional wisdom expects the central bank to start cutting interest rates. The Fed has kept its key funds rate in the range of 5.25% to 5.50% since last July in response to a generational surge in inflation.

Most Fed watchers predict the bank’s governors will approve a cut of 25 basis points, or 0.25 percent. Although modest, that would mark the end of 14 months of tight monetary policy.

For Bank of America, the Fed meeting is likely to provide a catalyst for markets. “This week, the Fed is expected to officially begin its tapering cycle after the longest stop at the top of a hiking cycle in its history,” noted the bank’s equity strategist Ohsung Kwon. “We expect the Fed to cut rates by 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 50bp cut as activity remains healthy. That said, market uncertainty of more than 25 or 50 basis points means the meeting will be a trading catalyst…”

Meanwhile, against that backdrop, analysts at Bank of America are bullish on two specific stocks, forecasting double-digit upside potential for each. We used the TipRanks database to see if these picks align with the views of Wall Street analysts. Let’s take a closer look.

Hewlett Packard Enterprise (HPE)

The first stock on our BofA-backed list is Hewlett Packard Enterprise, a company spun off from Hewlett-Packard in 2015. HPE inherited its parent company’s server, storage and networking businesses and took them public on its own hook. The company now offers a range of solutions for everything from data collection and intelligence, to data security, to edge-to-cloud computing, to hybrid cloud operations. These are all services in high demand by AI companies and developers – and the AI ​​boom promises an advantage for HPE.

In a deal 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 leverage HPE’s cloud-native networking and AI capabilities and be profitable in the first year after closing. The Juniper deal is expected to close before the end of this year.

Earlier this year, HPE brought on board a new CFO, Marie Myers, who previously worked at the firm’s parent company. Myers has a reputation for driving innovation and performance, and her mission with HPE includes reducing costs and improving efficiency.

Financially, HPE’s strong AI product lines and a continued cyclical improvement in the AI ​​sector outlook proved to be a driver of revenue in the recently reported fiscal 3Q24 (July quarter). The company’s top line rose just over 10% year over year to $7.7 billion and beat estimates by $40 million. In the end, HPE made a profit of 50 cents per share in non-GAAP measures, a figure that was 3 cents per share ahead of the forecast.

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Investors on the lookout should note that HPE also declared its next dividend payment, at 13 cents per common share. That payment, scheduled for October 18, is annualized at 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 some solid upside to the table. In his review, Mohan lays them out clearly, writing, “We view the stock as attractive as we see the opportunity for (1) significant cost reductions driven by new CFO Marie Myers with a proven track record at HPQ, (2) Cyclical recovery in across servers, storage and especially networking, (3) Revolution and increased cost synergies with the upcoming Juniper acquisition, (4) High performance computing (HPC) margin recovery from low levels, and (5) AI beneficiary as demand Enterprise/Sovereign is growing.”

These factors support Mohan’s upgrade to a Buy (from Neutral). His price target, set at $24, implies the stock will gain 32% over the next year. (To follow Mohan’s history click here)

Turning now to the rest of the street, where HPE has a consensus rating of Moderate Buy based on 10 reviews that include 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 (GEV)

Next on our BofA-approved list is another company that emerged as a spin-off from a large parent firm. GE Vernova was formed as an independent company earlier this year when parent General Electric first merged, then split, 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 the year 2030. GE Vernova’s customers generate approximately 25% of the world’s electricity, putting this green technology firm in a position to lead the global transition to cleaner energy.

Counting back to the founding of the parent company, GE Vernova can count on 130 years of experience in the field. The company has approximately 55,000 wind turbines and 7,000 gas turbines in operation today 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 power, nuclear power and even steam power generation. All of these have contributions to make to the global need for electricity, and each has different combinations of attributes to suit any imaginable situation. GEV’s hydropower solutions are currently used by more than 25% of the installed hydroelectric generation capacity worldwide. The company’s services business has 65% stock, which is expected to provide steady cash flow going forward.

GE Vernova has released two sets of financial results since going public last spring. The more recent of the two, released in July, covered the 224th quarter and showed a top line of $8.2 billion. While this missed the forecast by $60 million, it’s important to note that the company also reported total orders of $11.8 billion, which bodes well for the future. Overall, GE Vernova had earnings of $4.65 per share. The company’s cash balance was $5.8 billion, up significantly from the $4.2 billion the firm had at the time of its split.

Andrew Obin, another 5-star analyst at Bank of America, thinks this company is showing underlying strength. He writes about its overall potential: “We believe GEV stock can outperform and grow for many quarters to come. We see 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 excess cash build-up. We argue that US electric power growth is on track to accelerate, and GE Vernova has greater US exposure compared to peers.”

Elaborating further, Obin adds: “Given our higher growth and profitability estimates for Gas Power Services, we are increasing our 2025 adjustment. Estimated EBITDA by $0.5 billion to $3.6 billion and 2026 by $1.1 billion to $5.4 billion. Our estimates are 16% above/respectively 27% higher than the current consensus.”

In Obin’s eyes, this is another stock that deserves a rating upgrade from Neutral to Buy. He tops that with a $300 price target to show his confidence in a one-year gain of 26.5%. (To follow Obin’s history, click here)

Overall, this newly public stock has a consensus rating of Strong Buy, based on 13 recent reviews that break out to 12 buys and 1 hold. That said, given the stock’s strong gains (up 73% over the past 6 months), the average price target of $238.23 suggests the stock will remain range-bound for now. (See GEV stock forecast)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’s Best Stocks to Buy, a tool that aggregates all of TipRanks stock information.

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 to do your own analysis before making any investment.