Best Stocks to Buy for the Next Bull Market, BofA

Best Stocks to Buy for the Next Bull Market, BofA

  • Chris Hyzy oversees $3.8 trillion as investment chief for Merrill and Bank of America Private Bank.
  • He says there should be three or four good stock buying opportunities in the next few months.
  • He told Insider what to buy in a secular bull market that will outlast a potential recession.

A consensus is taking hold that the US will go through a recession fairly soon, and that it will be “mild” as recessions go. Chris Hyzy of Bank of America says those descriptions undersell how strange that recession could be.

“In the next few months, between now and the end of the year, we will likely see some of the most confusing economic data that we’ve experienced in two decades,” Hyzy told Insider in a recent interview. He is the chief investment officer for Merrill and Bank of America Private Bank, which had a total of $3.8 trillion in client balances at the end of June.

But now, Hyzy says the US is looking at another recession barely two years after the last one ended, coming hot on the heels of a bull market fueled by stimulus payments and low interest rates. And that recession, assuming it happens, will be one that includes a strong job market and healthy levels of spending by consumers.

“This is very unconventional, but the market is pricing in conventional things,” he said. Hyzy also thinks that as investors try to make sense of the confounding economic data and falling earnings estimates, the S&P 500 will bounce between 3,500 and 4,000 — and while there may not be another big plunge, there probably won’t be major rallies either.

And for investors who are willing to wait, he says some major opportunities will appear in the stock market over the next few months.

“You will have three or four opportunities between the summer months of 2022 and the summer months of 2023 to establish long term positions,” he said. “Put money to work, not at any one time, but do it over time.”

The good news, he says, is that even a recession won’t disrupt the emerging secular bull market — which will also be very different from the last one. Since economic growth should be distributed much more broadly than it once was, he doubts that one or two sectors will predominate the way tech and discretionary stocks did in the 2010s.

Instead, he suggests “having sector diversification and a total return approach to equities inclusive of dividends and capital appreciation, companies that are highly profitable and have minimal exposure to high labor costs.”

If inflation is going to be hotter than it was in the recent past and the job market stays tight, companies will invest in automation and improving productivity. That’s bullish for chipmakerscompanies in automation and warehousingand in companies that are exposed to corporate capital spending.

“You must do something to control long run inflation. And if you have a low pool of labor, the only thing you can do is increase your penetration of automation everywhere,” he said. “I think that’s the kicker to the next cycle. And that’s why we still believe that this cyclical bear market will ultimately turn back into a secular bull.”

Hyzy is more positive on those areas than on some previous leaders like consumer-focused subscription services or highly cyclical energy companies.

He also thinks that healthcare stocks are in line for “a major, decade-long outbreak to the upside” because of their solid balance sheets and good dividends, and the sector delivers good growth through biotech stocks. However, he warns that a major federal prescription drug bill could remove some of those reasons for optimism.

Meanwhile, he says, bonds will deliver better yields than they did during the last bull market, but there’s no chance of a long-lived bull market with huge price appreciation. That means qualified investors should consider alternative investments like hedge funds and real estate.

“If you assume that bond yields will remain relatively consistent and less bond appreciation, then you’re going to need to add a total return vehicle that makes up for that,” he said. “And the equity market may have a better mix between dividends and capital appreciation.”

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