16 stocks neglected by large investors that are poised to smash earnings expectations, according to Bank of America

Earnings season is almost here again.

The first quarter of 2018 was the best quarter for corporate America in seven years, based on earnings growth. For the second quarter, analysts forecast a slowdown in S&P 500 earnings to $39.19 a share, a 20% year-on-year growth rate versus 23% in the first quarter, according to Bank of America Merrill Lynch.

But that’s still not a good reason to sell out of the stock market, Savita Subramanian, the bank’s head of US equity and quant strategy, said in a recent note. In fact, the busiest reporting periods, from July 23 to 26 and from July 30 to August 1, present a good opportunity for investors to rake in returns. That is because stocks make larger-than-usual moves based on whether companies beat or miss expectations.

“Watch crowded stocks by active funds: those that miss tend to get hit harder,” Subramanian said. “In 1Q, the most overweight stocks that missed on EPS and/or sales underperformed by 40-150 bp more, suggesting that even with low dispersion, positioning can add alpha.”

The list below shows the buy-rated stocks that Bank of America expects to outperform expectations the most, which are also underowned by fund managers. It is ranked in ascending order of Z-scores, or how much more bullish BAML’s analysts are compared with the consensus.