The 2022 selloff in the stock market has taken a bullish turn of late, with major indexes up by double digits from their June lows. Whether that is just a bear-market rally or the start of a lasting turn in performance will only be clear in hindsight. Either way, the declines have created some attractive opportunities in individual stocks for investors looking farther ahead than a few weeks or months.
“We’ve become increasingly bullish over the medium to long term,” says Jon Boyar of the Boyar Value Group, which includes an investment firm, Boyar Asset Management, and a research arm, Boyar Intrinsic Value Research. “Has the market bottomed? I have absolutely no clue. But I think many stocks have reached a point where the risk/reward is solidly in investors’ favor.”
Boyar’s approach is a more opportunistic style of value investing than traditional value investing, which tends to focus on buying the cheapest stocks. That means defining value relative to his team’s estimates of a company’s future potential, not necessarily relative to the broader market or the company’s industry.
Last week, Boyar Research put out a report called “Fresh Looks,” highlighting about a dozen stocks whose share prices have declined more than their business prospects. The median stock in the report was recently down 25% year to date and 32% from its 52-week high. The
is down about 13% this year and from its record high, while the small-cap
index has shed 14% year to date and 21% from its November high.
“Just because something has gone down a lot doesn’t make it a bargain,” Boyar says.
“We think if you focus on quality, combined with a great valuation, combined with a catalyst, that should keep you out of trouble…Now is a fantastic time to be an opportunist investor.”
One such opportunity is in
Bank of America
stock (ticker: BAC), says Boyar, which has lost about 24% after dividends so far this year. The bank’s bread-and-butter business is lending to U.S. consumers and businesses, with less revenue tied to investment banking and international operations than its large-cap peers. That is an advantage in the current environment of relatively little dealmaking, a strong dollar, and increasing interest rates, says Boyar. The recession risk to the financial sector in the coming year won’t be a repeat of the global financial crisis.
“These are not the banks of 2008 or 2009,” says Boyar. “Credit quality is so much stronger, their capital levels are higher, and the same risk is just not there.”
Bank of America
is among the most asset sensitive of the major U.S. banks, Boyar says, meaning that its assets, such as loans, respond to changes in interest rates faster than its liabilities, such as consumer deposits. That is an advantage when rates are going up.
At the end of the second quarter, 39% of the bank’s more than $2 trillion in deposits paid no interest at all, while consumer accounts paid an average interest rate of just 0.02%. Net interest income rose by $870 million sequentially in the period, and management suggested a similar rise in the third quarter. The vast majority of that will flow through to the bottom line.
Boyar’s team values Bank of America stock at 1.8 times their estimate of $25 in tangible book value next year. That yields a price target of $45, up 32% from a recent $34 a share. And if a recession can be avoided, Boyar sees shares trading for more like 2.1 times next year’s tangible book value, where they were trading as recently as February. That would make shares worth about $52, up 53%. Bank of America stock also has an annual dividend yield of 2.6%.
Another stock worth a fresh look is
(DIS), Boyar says, after a 31% decline in 2022. Poor results from
(NFLX) and souring investor sentiment on the streaming business have beaten down shares. But, for Boyar, it isn’t just about Disney+ and the company’s streaming ambitions—in fact, most of Disney’s profit potential lies in its theme parks segment.
“People are worried about the parks in an economic downturn,” Boyar says. “But I think that will be offset by two and a half years of pent-up demand from the pandemic. So it won’t be as bad as the typical recession, and right now the park is firing on all cylinders.”
Boyar notes that per-capita spending at Disney’s parks is up 40% from 2019 levels, despite online acrimony visitors about price increases. The return of international visitors could be another reopening tailwind for the segment.
Disney films are back at the box office as well, with several big releases planned for later this year, including Black Panther: Wakanda Forever and Avatar: Way of Water. TV advertising is most sensitive to an economic downturn, but makes up only 18% of Disney’s revenue—far less than at competing media companies.
Then, there is Disney’s flashy streaming push, which continues to burn cash. Boyar expects international launches and price increases to keep revenue growing, with profits materializing once greater scale is achieved.
Boyar uses a sum-of-the-parts approach to valuing Disney stock, resulting in a $198 price target, for upside of about 85%. He notes that at the stock’s current levels, investors can effectively pay for the TV, movie and licensing, and parks businesses and get streaming free.
Finally, Boyar points to another reopening play that has already begun to recover from its 2022 selloff:
Boyar expects Uber to continue to generate profits, after delivering positive free cash flow for the first time in its history last quarter. He sees ride-hailing demand continuing to surge as people get moving again postpandemic, and driver-supply improving should the labor market soften. The food-delivery business is tougher, with greater competition, but it benefits from a network effect.
Boyar also uses a sum-of-the-parts approach to valuing Uber. That gets him to a price target of $46 per share, or 44% upside from current levels.
Write to Nicholas Jasinski at firstname.lastname@example.org
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