Top five stocks recommended by major investment banks

Maxim Manturov, Head of Investment Advice at Freedom Finance Europe, provides insight on five stocks identified by investment banks that have high growth potential.

Investment banks play an important role in the stock market and other financial markets. Like a circulatory system, they distribute cash flows within the market by arranging the issuance, placement and trading of stocks. Through their underwriting services, investment banks help companies raise capital and enter the public market, while their asset management advice enables investors to grow their wealth.

Major global investment banks, or Bulge Bracket banks, also have an important information function. On a daily basis they issue dozens of financial market reports that stock their recommendations and forecasts for various assets.

Manturov researched and analysed the latest investment recommendations from the Bulge Bracket banks including Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup. Based on this analysis, we have compiled a selection of what we believe are the most interesting investment ideas.

The top five stocks

1. GXO Logistics

GXO Logistics (GXO.US) provides contract logistics services such as warehousing, distribution, order fulfilment, e-commerce, and reverse logistics. GXO Logistics is steadily expanding its presence in the e-commerce segment, which is forecast to grow at an average annual rate of 9.7% until 2026.

However, the company has low margins, which pose a risk to shareholder value in the current macroeconomic turbulence. The logistics services market is subject to cyclicality. If economic growth declines significantly, the company could face a reduction in operating results and market share value.

Our analysts believe that this stock is high risk so recommend only allocating 2% of your portfolio to this stock with an entry price of $35 – $38 (£28.76-£31.23) and selling at $63.90 (£52.51). This would give investors a potential growth of 82.3%

2. Western Digital Corporation

Western Digital designs (WDC.US) manufactures and markets hard disk drives (HDDs) and solid-state drives (SSDs) for mobile phones, tablets, laptops and other devices in the US and internationally. The storage market is growing rapidly as cloud infrastructure expands and IT spending increases globally. In the long term, Western Digital could become a major player in the 5G smartphone flash memory market.

However, some of Western Digital’s competitors, including names like Samsung and Dell, have significantly more resources. This factor could have a negative impact on the company’s financial performance in the long term. The company has low margins, which pose a risk to shareholder value in the current macroeconomic turbulence.

Our analysts believe that this stock is also high risk and would recommend allocating 1% of your portfolio with an entry price of $33-$35 (£27.11-£28.75) and selling at $45.50 (£37.39), giving investors a growth potential growth of 28.3%.

3. Delta Air Lines

Delta Air Lines (DAL.US) is one of the world’s largest airlines based on three important criteria — fleet size, passenger volume and number of destinations. Its route network spans North America, South America, Europe, Asia, Africa, the Middle East and the Caribbean.

Delta Air Lines is one of only two companies in the aviation sector with a positive net profit. The company is rapidly reducing debt and actively working to improve customer loyalty, which could provide further incentives to revalue the stock.

However, the company has low margins, which pose a risk to shareholder value in the current macroeconomic turbulence. Despite the effects of pent-up demand, a potential recession is an important risk factor for Delta because airlines are highly susceptible to market cycles.

Our analysts believe that this stock carries moderate risks and would recommend allocating 2% of your portfolio with an entry price of $32-$34 (£26.29-£27.93) and selling at $48.10 (£39.52), giving investors a growth potential growth of 46.9%.

4. BorgWarner

BorgWarner (BWA.US) offers solutions for internal combustion engines, hybrid vehicles and electric vehicles worldwide. Half of the company’s revenue comes from turbochargers, emissions systems and battery components. Electric motors, alternators, inverters and transmission modules account for about 35% of sales. BorgWarner’s customers include all the major automakers, including Ford, GM, Daimler, BMW and Stellantis.

BorgWarner is characterised by stable profitability, solid cash flow and a healthy balance sheet. The company has an active policy of mergers and acquisitions, expanding its presence in the electric and hybrid vehicle market.

However, electric cars are likely to become an important part of our lives in the coming years, so there are likely to be many new competitors entering the market, which could have a negative impact on BorgWarner’s financial performance.

Also, potential recession is an important risk factor for BorgWarner because automotive component suppliers are highly susceptible to market cycles. Furthermore, significant concentration on mergers and acquisitions creates risks to shareholder value. There is a possibility that BorgWarner will overpay for a particular business or that the fundamental qualities of the acquired companies will be worse than originally estimated.

Our analysts believe that this stock also carries moderate risks and would recommend allocating 2% of your portfolio with an entry price of $37-$39 (£30.39-£32.03) and selling at $47.80 (£39.27), giving investors a growth potential growth of 26%.

5. Vontier Corporation

Vontier Corporation (VNT.US) provides both hardware and software solutions for petrol stations and convenience stores, vehicle tracking and traffic management equipment, as well as tools for vehicle service stations and tyre shops.

Thanks to strategic acquisitions and the rapid diffusion of instant payment technologies at service stations, Vontier has a surplus demand in the mobility technology segment, which accounts for 75% of the company’s revenue.

However, entering the charging station market is one of the key growth drivers for Vontier. The charging station industry is expected to grow strongly in the coming years, so there are likely to be many new competitors entering the market, which could have a negative impact on Vontier’s financial performance.

Also, significant concentration on mergers and acquisitions creates risks to shareholder value. There is a possibility that Vontier will overpay for a particular business or that the fundamental qualities of the acquired companies will prove to be worse than originally estimated. Finally, although the interest coverage ratio is high, the heavy debt burden poses risks to shareholder value in the current macroeconomic turbulence.

Our analysts believe that this stock is high risk and would recommend allocating 2% of your portfolio with an entry price of $17.50-$18 (£14.36-£14.77) and selling at $26.90 (£22.09), giving investors a growth potential growth of 51.5%.