Bank of America's top trade ideas for the third quarter

CNBC

3 hours ago

Stocks such as Cisco Systems and Levi Strauss could outperform in the new quarter, according to Bank of America. The first half of the year was mired with elevated volatility as President Donald Trump's administration introduced sweeping global tariffs. Stocks have recovered from their April lows — with the S & P 500 notching a new record close on Thursday — but could see more downside going forward, according to Bank of America. Bank strategist Savita Subramanian's updated year-end forecast for the S & P 500 sits at 5,600, or roughly 11% below the benchmark's Thursday closing level. Bank of America also believes the Federal Reserve will continue to hold interest rates steady for the rest of the year, and is cautiously optimistic about the current state of the U.S. job market. "Our economists continue to see the Fed on hold in '25 and delivering 100bps of cuts in '26. Their logic: inflation will rise in 2H '25 with tariffs, and the Fed won't likely be comfortable cutting until it moves sustainably lower," Bank of America wrote in a recent note. "The labor market may feel pressure from immigration restrictions and trade uncertainty, but it shouldn't break." In the same note, it shared several of its top stock picks that could outperform based on the view that "these stocks could have significant market and business-related catalysts in the quarter ahead." A few of the names it shared are highlighted below: One name on the list was technology stock Cisco Systems, up 17% this year. Bank of America's $76 price objective represents upside of about 10% from the stock's Thursday close. "Cisco is positioned to capitalize on long-term networking trends, with Networking growth accelerating, up 3.2% QoQ in 3Q25, reflecting strong Cloud and Enterprise demand," wrote analyst Tal Liani. "We expect further growth as orders flow into revenues. Management cited that AI and Cloud are putting renewed strategic importance on the network for both a performance backbone, as well as security capacity." Jeans maker Levi Strauss was another recommended stock pick. Shares of Levi Strauss have added 10% in 2025. The bank's price target of $21 per share represents upside of 10% from the stock's Thursday close. "We think LEVI checks a lot of positive boxes: sales momentum coupled with a conservative revenue outlook, minimal China risk (sourcing and sales), an improving wholesale trajectory, a diversified supply chain, and a strong balance sheet," wrote analyst Christopher Nardone. "We think F25 guidance could prove conservative and view LEVI as a brand that has momentum in both its core denim business and its emerging lifestyle (non-denim) business." Bank of America highlighted cloud company Datadog as its top pick for the third quarter. "We are detecting good demand for its products, active participation in the AI secular growth theme, and strong new product launches that can drive new revenue streams, supporting our bullish outlook. We believe its strong execution will continue in 3Q25, which can drive potential upside to our/Street revenue and profitability forecasts," wrote Koji Ikeda. "We believe this will catalyze shares higher." Shares of Datadog have climbed almost 9% year to date. The stock rallied 15% on Thursday after it was announced as the newest addition to the S & P 500. Datadog will replace Juniper Networks, which was acquired by Hewlett Packard Enterprise on July 2. After this rally, Datadog has already surpassed Bank of America's $150 price objective, ending the day at $155.15