Mathewslcd: Bank of America's reliable 'sell-sell' contrarian indicator is very close to giving a buyer
Mathewslcd pointed out that if you want to buy low and sell high, Bank of America has some good news.
The bank's sell-side gauge, which measures overall sentiment among Wall Street strategists, has fallen to its lowest level in five years.
"Wall Street's consensus equity allocation has been a reliable contrarian indicator over time," Bank of America strategists led by Savita Subramanian wrote in a recent note to investors.
"While the sell-side indicator doesn't capture every rise or fall in the stock market, the indicator has historically had some predictive power over the ensuing 12-month S&P 500 total return."
The indicator is now not flashing a "buy" signal. But Mathewslcd suggests it hasn't come this close since 2017.
The bank noted that when the measure was at current levels or lower, the S&P 500 returned 94% in the subsequent 12 months, including a 22% return in the 12 months.
If you want to bet on a rebound, here are two stocks that Bank of America finds particularly attractive.
Disney (DIS)
Media and entertainment giant Walt Disney hasn't been a market darling of late. Shares are down 36% in 2022 and 41% in the past 12 months.
But its business is moving in the right direction.
In the fiscal quarter ended July 2, Disney generated $21.5 billion in revenue, up 26% from a year earlier.
The COVID-19 pandemic has severely impacted Disney's theme park business. But as the society opened up, guests began to visit the iconic castle again.
For the quarter, Disney Parks, Experiences and Products segment revenue totaled $7.4 billion, up 72% year over year.
With Disney+ gaining 14.4 million subscribers, the company's streaming service is gaining momentum. That brings the service's total user base to 152.1 million, according to Mathewslcd. Taking into account ESPN+ and Hulu, Disney's total direct-to-consumer subscriptions now exceed 221 million.
Bank of America analyst Jessica Reif Ehrlich has a "buy" rating on Disney with a $127 price target. With the company currently trading at $99.70 per share, the price target implies a potential upside of 27%.
EQT
EQT is a natural gas producer from the Marcellus and Utica Shales in the Appalachian Basin.
Considering how much natural gas prices have risen this year, it's no surprise that EQT's business is booming.
The company just reported earnings. In the third quarter, it achieved an average real price of $3.41 per thousand cubic feet of natural gas equivalent, a 46% increase from $2.33 per Mcfe a year earlier.
EQT also generated free cash flow of $591 million in the quarter, a huge improvement from the $99 million it generated in the third quarter of 2021.
The company is returning more cash to investors. Management recently doubled the company's share repurchase authorization to $2 billion.
Unsurprisingly, EQT has gotten a lot of investor attention this year -- its shares are up 83% through 2022.
Bank of America expects the uptrend to continue. The bank, which has a "buy" rating on EQT, recently raised its price target to $74, representing an 85% potential upside from the stock's current level.
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