8 Great Stocks to Buy for the Third Quarter

Bank of America loves these stocks now.

The second half of 2018 is officially under way after a volatile first half of the year for stocks. Overall, the U.S. stock market has been relatively solid so far this year, with the S&P 500 index up about 2 percent for the year. However, gains have been mostly concentrated in the technology and consumer discretionary sectors, with most other sectors trading flat or down. In a mixed market, stock selection is critical. The Bank of America analyst team recently selected the following eight U.S. stocks as its top "buy" ideas for the third quarter.

Allergan plc (ticker: AGN)

Analyst Jason Gerberry says the U.S. pharmaceutical industry will be a stock-pickers market in the second half of 2018, and Allergan has the best combination of value and near-term catalysts in the group. Gerberry says Allergan stock is "meaningfully undervalued," but a new group of activist investors (Appaloosa, Senator Investor Group and Carl Icahn) will likely push aggressively to unlock that value in coming months. In addition, Allergan has multiple third-quarter study updates coming for ubrogepant and abicipar. Bank of America has a "buy" rating and $213 price target for AGN stock.

DXC Technology Co. (DXC)

Analyst Jason Kupferberg says DXC stock is currently trading at about 10 times consensus 2019 earnings per share estimates, a steep discount to its peer group's earnings multiple of about 17. While DXC's revenue growth and operating margins currently lag those of its competitors, Kupferberg says DXC's increasing focus on its digital business and cost synergies associated with its spin-merger from Hewlett Packard Enterprise (HPE) will help boost both metrics. He says the next potential catalyst for the stock is its analyst day event in September. Bank of America has a "buy" rating and $103 target for DXC stock.

Fluor Corp. (FLR)

Analyst Anna Kaminskaya says Fluor is the best way for investors to play the boom in energy and mining spending that will be playing out over the next several years. Kaminskaya says Fluor's backlog reached an inflection point in the second quarter of 2018, and the company is on the verge of booking two major $3 billion deals in the third quarter with BHP and Anglo American. Kaminskaya says the deals will trigger earnings per share upgrades and earnings multiple expansion for FLR stock. Bank of America has a "buy" rating and $58 target for FLR stock.

Honeywell International (HON)

Analyst Andrew Obin says Honeywell stock has been plagued by subpar revenue growth over the past few years, but its Aerospace and Sensing and Productivity Solutions revenue has shown signs of life in the most recent quarter. Obin says if these trends continue, Honeywell's growth could return to the top 25 percent of its peer group through 2019. EPS revisions and earnings multiple expansion could create meaningful upside for HON stock as well. Obin says the next positive catalyst will likely be second-quarter earnings on July 20. Bank of America has a "buy" rating and $185 target for HON stock.

Marvell Technology Group (MRVL)

Analyst Vivek Arya says Marvell Technology CEO Matt Murphy is optimistic about core growth and margin expansion and expects Marvell's Cavium (CAVM) deal to close by the end of July. Arya estimates Cavium could put Marvell on the path to $2 in EPS by 2020, making the stock a value compared to peers. That value opportunity coupled with near-term catalysts and Marvell's leading technology in the fields of enterprise storage, security, networking, cloud and data centers makes the stock a top pick. Bank of America has a "buy" rating and $28 target for MRVL stock.

Nucor Corp. (NUE)

Analyst Timna Tanners says Nucor will continue riding elevated steel prices to quarterly earnings beats throughout the second half of the year. Tanners says there hasn't been much political push-back to President Donald Trump's steel tariffs, but Nucor is somewhat protected from unexpected downside in U.S. steel prices due to its variety of global end markets. Tanners says Nucor has a strong free cash flow outlook, a very healthy balance sheet and exposure to a non-residential construction market that's in an upswing. Bank of America has a "buy" rating and $78 target for NUE stock.

SVB Financial Group (SIVB)

Financial stocks have underperformed so far in 2018, but SVB Financial has bucked the trend. SIVB stock is up 23 percent year-to-date, and analyst Ebrahim Poonawala says it remains the top financial sector stock pick headed into the second half of the year. Poonawala says SVB has been able to maintain its superior growth rate even as the bank gets larger and expands its global footprint. Poonawala is expecting another earnings beat and guidance raise when SVB reports second-quarter earnings on July 26. Bank of America has a "buy" rating and $350 price target for SIVB stock.

United Technologies Corp. (UTX)

Analyst Ronald Epstein says United Technologies offers investors the rare combination of significant upside and limited risk in the event of an economic downturn. Epstein says UTX stock is undervalued, including a negative implied valuation for the company's geared turbofan engine. Epstein says downside is likely limited given United's diversified international exposure and conservative balance sheet. He says the closing of the Rockwell Collins (COL) acquisition should be another positive catalyst at some point in the next six months. Bank of America has a "buy" rating and $195 price target for UTX stock.

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.