Bank of America: S&P 500 may rise 13% in the next 12 months? Opportunities hidden in technology, pharmaceuticals, and energy

According to Zhitong Finance APP, recently, Bank of America released a research report stating that the sell-side indicator for U.S. stocks in August dropped from 55.7% to 55.5%, remaining in the "neutral" range and has not yet issued a "sell" signal. Although this indicator is above the 15-year average, the current level suggests that the S&P 500 index is expected to achieve a robust price return of 13% over the next 12 months. Additionally, the report mentions that despite market uncertainties, opportunities in sectors such as technology, pharmaceuticals, and energy are clear.

The main points of this report are as follows:

1. Looking at the market: Contrarian indicators suggest there is still room for the stock market to rise

Many people are currently struggling with the question of "Is the stock market expensive or not?" Bank of America provides an answer using a "contrarian indicator" — the Sell-Side Indicator (SSI). Simply put, this indicator tracks the proportion of stock allocations recommended by Wall Street analysts, characterized by "the more panicked others are, the more bullish it becomes; the more greedy others are, the more cautious it becomes," and it has been quite accurate in the past.

The latest data shows that in August, this indicator dropped from 55.7% to 55.5% — this is the first decline since April, but the decrease is minimal (only 0.2 percentage points). The current indicator is still in the "neutral" range, but it is closer to the "sell" signal (57.8%) than the "buy" signal (51.3%). However, don't panic; Bank of America emphasizes that even though the indicator is currently above the 15-year average, the S&P 500 is still expected to rise by 13% over the next 12 months.

In simple terms: the current market is not extremely euphoric; although it hasn't reached the point of "buying with closed eyes," it also hasn't reached the stage where one should escape, leaning towards stability overall.

2. Tech giants "crossing the hurdle": Google and Apple welcome key benefits, can Coinbase break through with institutional business?

Tech stocks have always been the focus of the market, and the most significant news in this report is the U.S. Department of Justice's antitrust ruling against Google, which also benefits Apple; additionally, Coinbase's latest developments are worth paying attention to.

1. Google (GOOGL.US), Apple (AAPL.US): The ruling isn't that bad, core businesses are secured

First, looking at Google: this ruling prohibits Google from signing "exclusive contracts" (such as forcing phones to pre-install Chrome and Google Search), but the key point is — Google can still pay distributors to maintain its "default search" position. Bank of America analyzes that Google's ability to monetize search is much stronger than its peers, so partners have no need to develop their own search, meaning most partnerships will not be terminated, and the search business is basically stable.

Apple also benefits: Apple currently sets Google as the default search engine, and users can change it but rarely do — the ruling does not require Apple to enforce a "selection interface," so the "default fee" Apple receives from Google (which accounts for 22% of Apple's service revenue) will not be affected. Bank of America even raised Apple's target price from $250 to $260, reasoning that "service revenue growth has become more certain." 2. Coinbase (COIN.US): Institutional business is the highlight, retail competition is a bit tough

The cryptocurrency platform Coinbase recently spoke with its CFO, and Bank of America's view is clear: the institutional business is a "plus," while the retail business is "a bit concerning."

The good news is that after stricter regulations, more traditional financial institutions (such as banks and brokerages) want to collaborate on digital assets. As the largest compliant platform in the U.S., Coinbase already has over 240 companies using its services (including PayPal and Stripe). It has also launched a "Base platform" (similar to a "mini-program ecosystem" on the blockchain), which now has an asset scale of $12 billion and supports USDC payments in partnership with Shopify, potentially becoming a new growth point in the future.

The bad news is that the retail side cannot compete with Binance—Binance's trading volume in 2024 is projected to be $7.4 trillion, while Coinbase is only $1.2 trillion. Additionally, Binance offers higher leverage and does not enforce identity verification, making it more attractive to retail investors. Therefore, Bank of America has given it a "neutral" rating, reminding everyone to pay attention to the progress of the institutional business.

3. Pharmaceutical Circle: Is GLP-1 not a "magical stock"? But Eli Lilly is still viewed positively

The "weight loss miracle drug" GLP-1 (such as Eli Lilly's tirzepatide and Novo Nordisk's semaglutide) has seen significant stock price fluctuations this year, with Novo Nordisk (NVO.US) down 40% and Eli Lilly down 5%. The market is most concerned about whether "pricing will collapse," but Bank of America has a different view.

1. Pricing is not that bad, Eli Lilly (LLY.US) is still the "leader"

Bank of America believes that the pricing of GLP-1 will be better than what the bears expect: first, Eli Lilly and Novo Nordisk are currently "dual oligopolists," and the two companies will not engage in reckless price cuts; second, there are no real generic drugs (Novo Nordisk's generic version won't arrive until 2032); most importantly, this drug is not as "expensive" as everyone says—previously, some institutions claimed it was not cost-effective, but Bank of America expects the new ICER report (authoritative medical value assessment) released in October may "reverse the narrative," leading employers to potentially expand insurance coverage, which would actually benefit sales.

Therefore, Bank of America maintains a "buy" rating for Eli Lilly, with a target price of $900 (current stock price $737), reasoning that "Eli Lilly is still the first in the obesity field, growing faster than peers, and the valuation is reasonable."

4. New Energy Trend: Will "Small Modular Reactors" Become the Next Trillion-Dollar Market?

When it comes to energy, people might first think of photovoltaics and wind power, but Bank of America has highlighted a "new player" this time—small modular reactors (SMRs), simply put, "mini nuclear power plants," which are more flexible than traditional nuclear power and can reuse the land and facilities of coal-fired power plants.

1. Market size is astonishing: 1/4 of the U.S. grid by 2050

Bank of America estimates that by 2050, the U.S. SMR market size will reach 343 gigawatts (equivalent to 1/4 of the current U.S. grid), corresponding to $1 trillion in investment. Of this, 255 gigawatts will come from increased electricity demand (U.S. electricity consumption is expected to rise by 50%), and 88 gigawatts will come from the replacement of retired coal-fired power plants 2. Currently focusing on three signals, these companies have opportunities

However, for stocks to rise, short-term catalysts are needed. Bank of America is closely monitoring three data points:

① U.S. data center construction spending (which reached an annualized $40 billion in June this year, up 30% year-on-year);

② Capital expenditures of hyperscale companies (such as Amazon and Google) (expected to spend $38.5 billion annually over the next four years);

③ Customer contract situation (hyperscale companies currently account for 40% of SMR orders).

On the company side, Bank of America gave OKLO (OKLO.US) a "Buy" rating (target price $92) because it has 14 gigawatts of intent orders and good cost control; it gave NuScale a "Neutral" rating due to slower customer progress.

5. Finding opportunities in bank stocks: This regional bank is undervalued

Many people think bank stocks are "uninteresting," but Bank of America has discovered a "dark horse"—Huntington Bancshares, giving it a "Buy" rating with a target price of $20 (currently $17.61), reasoning that "its growth potential is not reflected in the stock price."

1. Growth momentum is substantial

Huntington Bancshares has advantages in two areas:

① Core business is stable: Banking operations in the U.S. Midwest are strong, and expansion is ongoing in the Southeast;

② Strong profitability: This quarter, loans are "growing steadily," and the net interest margin (the interest spread banks earn) can exceed 3.2%, with an annual cost saving of 1%.

1. Risks are low

Management stated that they are not pursuing major acquisitions for now (previously aimed to acquire Texas's Veritex Bank, to be completed in Q4), which will not distract their focus, thus the "risk of stepping on a landmine" is small. Currently, its price-to-earnings ratio is only 11 times, on par with peers, but its growth is faster than that of peers, and Bank of America believes "it can still rise."

6. Consumer data analysis: Are Americans willing to spend money now?

Finally, looking at concrete consumer data—Bank of America's credit card data shows that in the last week of August, U.S. household credit card spending increased by 2.8% year-on-year. Although there was an impact from the Labor Day holiday being earlier, even after adjustment, it still rose by 1.9%, indicating a rebound in consumption in Q3.

However, category differentiation is very obvious:

• Strong categories: Online electronics (up 11.2% year-on-year), clothing (up 3.2%), groceries (up 1.5%);

• Weak categories: Home improvement (down 8.3%), airlines (down 4.3%), hotels (down 1.9%). This also aligns with current economic characteristics: people are more willing to buy "small and exquisite" items, while large expenditures (such as renovations and long-distance travel) are still approached with caution.

Final summary: These opportunities are worth monitoring

The overall logic of Bank of America's report is "although there are uncertainties, some sectors have clear opportunities":

• Stock market: The S&P 500 may rise 13% over the next 12 months, don't panic;

• Technology: Google and Apple benefit from favorable rulings, Coinbase looks at institutional business;

• Pharmaceuticals: Eli Lilly's GLP-1 pricing risk is not that significant;

• Energy: SMR is a long-term opportunity, focusing on data center and hyperscale enterprise spending;

• Banking: Huntington Bank's growth is underestimated