Bank Of America Presents 10 Huge Investment Ideas

polo match hamptons

Photo: flickr: JC Edward

As traders start their summer shift to the Hamptons, markets are set for the summer doldrums, a quiet period when deals slow and trade declines from headier times in the spring and winter.But Bank of America Merrill Lynch doesn’t think that means there aren’t smart positions to take.

“In our opinion the summer will nevertheless provide several compelling investment opportunities,”┬áMichael Hartnett,┬áchief global equity strategist, writes in the note.

#1. Bet on the U.S. real estate comeback

Bank of America says:

  • Mortgage backed securities are becoming increasingly attractive
  • Fed easing this fall will boost the asset class
  • Hardline retailers and home builders

#2. Buy attractive dividend growth stocks

Bank of America says:

  • Dividend growth stocks are at cheaper valuations than high dividend yielding equities
  • Payout ratios could rise
  • Lower impact from increasing interest rates

#3. Be wary of depressed assets in Europe

Bank of America says:

  • The crisis is not over
  • Financials will continue to underwhelm
  • But when a rally starts, banks will lead
  • Stick with best of breed companies until recovery takes hold

#4. Buy U.S. tech

Bank of America says:

  • Tech is trading at a discount to the S&P 500 for the first time since 1996
  • Room for dividends, buybacks, and capex
  • Earnings volatility has declined

#5. Go long gold

Bank of America says:

  • Monetary easing will boost gold prices
  • Prices rallied ~20% each during QE1 and QE2
  • Gold equities are undervalued

#6. Invest in corporate debt over sovereign bonds

Bank of America says:

  • Credit spreads have widened, creating an entry point
  • Global high yield corporates have outperformed global sovereigns by 95 ppts
  • Overweight financial high grade bonds

#7. Buy Asian emerging markets

Bank of America says:

  • Emerging markets in EMEA and Lat. Am. will suffer on European crisis
  • BAML forecasts that EM Asia will grow 6.8 per cent in 2012
  • That's two times faster than EMEA and Lat. Am. growth
  • Asia EMs have healthier banking systems and few inflation issues
  • Chinese easing could boost Asian EMs

#8. Pick developed companies growing in emerging markets

Bank of America says:

  • Emerging market companies are overvalued
  • Developed market companies are growing in emerging markets
  • Real emerging market consumption has averaged 7 per cent growth since 2007
  • Geographic diversity provides a hedge

#9. Choose dollar stores if investing in retail

Bank of America says:

  • Dollar stores will grow with or without a recovery
  • Sustainable six to seven per cent square footage growth forecasts
  • Expansion into alcohol and tobacco is boosting share

#10. Hedge your bets intelligently

Bank of America says:

  • Correlations between asset classes are at multi-year highs
  • Loose policy and crisis fatigue pushes the need for diversification
  • There are wide valuation gaps between cheap and expensive hedges, creating alpha

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