Bank of America says buy these 14 cheap stocks that are best positioned to soar on the strongest economic comeback in nearly 40 years

Summary List Placement

While investors have piled into small-company stocks at a furious pace over the last couple of months, in some ways they’re surprisingly hesitant.

Historically, those smaller stocks have tended to do better than larger ones as the economy comes out of recession and a new bull market begins. That’s been the case lately, but Bank of America strategist Jill Carey Hall says valuations show that many investors are taking an overly cautious approach.

“Small cap cyclical sectors do not appear to be pricing in the recovery, trading at/near record discounts to defensive sectors,” wrote Carey Hall, an equity and quantitative strategist. “With our economists’ forecast for 6% US GDP growth (strongest since 1984), we see smaller stocks as a better way to invest in the economic rebound than larger stocks.”

Carey Hall says the economy has moved from the early stages of a recovery into the middle stages of the cycle. That’s still a period where small cap, risk, and value factors should work well. And confirming that thesis, she says risk factors were the best way to outperform in January.

She adds that today, there’s also reason to believe smaller and less-expensive stocks are underappreciated.

“Low Price has tended to outperform in small caps for ~16 mos. (and by ~50ppt) following market troughs (vs. outperformance for less than a year/~30ppt today, suggesting potential for further upside),” Carey Hall wrote.

With those ideas in focus, Carey Hall names these companies as top picks. They’re all “Buy” rated and rank in the top 20% of the Russell 2000 based on their sensitivity to US GDP. They are also among the cheapest 40% of Russell 2000 stocks based on their valuations as measured by either price-to-book ratio, forward price-to-earnings ratio, or enterprise-value-to-sales ratio.

Those stocks are ranked from lowest to highest based on how much further they have to rise to meet Bank of America’s 12-month price targets. Those figures were calculated based on Friday’s closing prices as a way of showing how much upside the stocks could have.

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14. ArcBest

Ticker: ARCB

Sector: Industrials

Market cap: $1.4 billion

Forward price to earnings: 14.7

GDP beta: 3.2

Price target: $53

Upside to target: -5.2%

Source: Bank of America

13. UMB Financial

Ticker: UMBF

Sector: Financials

Market cap: $3.8 billion

Forward price to earnings: 14.2

GDP beta: 0.1

Price target: $84

Upside to target: 3.8%

Source: Bank of America

12. Cracker Barrel Old Country Store

Ticker: CBRL

Sector: Consumer discretionary

Market cap: $3.5 billion

Forward price to earnings: 28.7

GDP beta: 1.7

Price target: $160

Upside to target: 4.3%

Source: Bank of America

11. Retail Opportunity Investments

Ticker: ROIC

Sector: Real estate

Market cap: $1.9 billion

Forward price to earnings: 13.7

GDP beta: 0.1

Price target: $17.50

Upside to target: 11.2%

Source: Bank of America

10. Helix Energy Solutions Group

Ticker: HLX

Sector: Energy

Market cap: $748 million

Forward price to earnings: 206.0

GDP beta: 0.1

Price target: $5.50

Upside to target: 12.0%

Source: Bank of America

9. Patterson

Ticker: PDCO

Sector: Healthcare

Market cap: $3.0 billion

Forward price to earnings: 16.1

GDP beta: 0.2

Price target: $36

Upside to target: 13.8%

Source: Bank of America

8. Louisiana-Pacific

Ticker: LPX

Sector: Materials

Market cap: $5.0 billion

Forward price to earnings: 9.5

GDP …read more

Source:: Business Insider