Analysts from Bank of America selected the stocks that they like best in the year ahead.
The firm unveiled its top picks for each sector in 2021 in a client note on Thursday, with the buy-rated names scoring well on the metrics that the investment firm expects to be hot topics on Wall Street, CNBC reported.
“These stocks align with themes in our 2021 Year Ahead (Value over Growth, small over large, Cyclicals over Defensive, ESG*), plus factors such as positioning, our analysts’ 2021 earnings outlook vs. consensus and more,” the note said.
The firm once again named Disney as a top pick for the year ahead. The entertainment stalwart was one of Bank of America’s top picks for 2020 as well, before the coronavirus pandemic shuttered theme parks and movie theaters around the world.
- Walt Disney Co. (DIS)
- Chevron Corp. (CVX)
- HCA Holdings Inc. (HCA)
- Alaska Air Group Inc. (ALK)
Meanwhile, surging U.S. stocks are stretching equity valuations near their highest levels in years, leaving investors to determine whether the rally signals a coming economic rebound or an asset price bubble in the midst of a global pandemic, Reuters explained.
After a 15% year-to-date rally, the S&P 500 trades at 22 times forward earnings, compared to a historical average of 15.3 times, according to Refintiv Datastream.
The technology sector, which accounts for nearly 28% of the index, trades at an even higher P/E ratio: 26.4 times compared to its historic average of 20.6 times.
Bulls argue stock prices are justified, with expectations that vaccines against COVID-19 will support a reopening of the economy. They also tout the relative attractiveness to assets such as bonds, with yields at extremely low levels.
Others believe pockets of the market have already entered overvalued territory.
"In aggregate, (stock valuations) are elevated .. relative to history. In certain parts of the market, there is definitely a bubble," said Walter Todd, chief investment officer at Greenwood Capital.
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