Bank of America is steering investors toward cheaper corners of the S&P 500, highlighting stocks it rates “Buy” that sit outside popular AI, power, and infrastructure exchange-traded funds. The bank’s screen comes as money continues to crowd into a narrow set of themes, raising questions about concentration risk and missed value elsewhere.
The review focuses on large-cap names that the bank believes are undervalued and under-owned by thematic funds driving much of this year’s returns. Analysts say the goal is to identify potential winners that have been left out of the hottest trades.
“Bank of America searched for cheap, buy-rated S&P 500 stocks across its coverage universe that are not included in AI, power or infrastructure-related ETFs.”
Why It Matters
Investors have poured cash into funds tied to artificial intelligence, data centers, utilities, and grid upgrades. Those flows have pushed up valuations in a small set of stocks. As leadership narrows, the risk rises that investors pay too much for growth while overlooking steady cash generators in other sectors.
Value hunters often look for quality companies trading at discounts to the market. Focusing on S&P 500 names can add a liquidity and governance screen that many seek in a choppy tape.
How The Screen Works
The bank’s approach targets large caps that meet two core tests. First, analysts have them at “Buy.” Second, they trade at lower valuations than peers or their own history.
- Included in the S&P 500
- Rated “Buy” by Bank of America research
- Screened as “cheap” on valuation metrics
- Not held by AI, power, or infrastructure-linked ETFs
Excluding stocks in these funds is key. Many AI and infrastructure ETFs hold similar names, which can amplify moves in both directions. By avoiding that overlap, the bank is pointing to ideas that may be less tied to thematic flows.
Market Context
Theme-driven trades have dominated this year. AI spending, grid modernization, and data center capacity have become central narratives. Utilities and chip suppliers rallied, while many other sectors lagged despite steady earnings.
History shows that leadership often rotates. After long stretches of outperformance, investors tend to look for underpriced earnings in areas that have trailed. The bank’s screen fits that playbook by pairing analyst conviction with valuation support and lower exposure to crowded trades.
Potential Sectors And Characteristics
While the bank did not list specific names here, the approach suggests a tilt to sectors with stable cash flow and limited ETF overlap. That can include parts of consumer staples, select financials, health care services, and some industrials with less direct AI or grid exposure.
These companies may show the following features. They generate free cash flow, maintain moderate leverage, and have pricing power that is not tied to hype cycles. They may also be buying back stock or raising dividends, which can support returns if earnings growth is modest.
Risks And Counterpoints
There is a reason many stocks sit outside trendy ETFs. Some face growth headwinds or lack clear catalysts. A lower valuation can reflect real challenges in demand, regulation, or competition.
Concentration in AI-linked names also reflects strong earnings momentum. If those trends persist, avoiding them could be costly. Investors must weigh the chance of a catch-up move in overlooked stocks against the staying power of current leaders.
What To Watch Next
Upcoming earnings will test the case for a broader market. If companies outside AI and infrastructure deliver steady guidance, interest in under-owned names could build. Any cooling in ETF inflows to popular themes may also help relative performance.
On the policy front, energy and industrial spending plans remain a swing factor. Delays or changes could shift where capital flows, affecting which sectors benefit. Rate movements will also matter, as cheaper financing often lifts cyclicals and balance-sheet heavy firms.
For now, Bank of America is signaling that value still exists in the S&P 500. The screen highlights an alternative path for investors wary of crowded trades. It favors analyst-backed ideas with room for multiple expansion if sentiment broadens.
The next phase of the market may reward patience. A handful of themes has led the way. If leadership widens, neglected names with solid fundamentals could gain ground.
