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Summary List Placement

One of the eternal debates in investing is whether it’s better to get into a hot trade and let it ride, or buy something that’s struggling and due for a comeback.

Sometimes, the answer is to just do both.

Steven DeSanctis of Jefferies says active managers are finding great success recently by making one of those two-pronged trades.

“Both Valuation & Momentum have started to perform well. We are seeing this across large, and this creates a good backdrop for active,” he wrote in a recent note to clients. “We are seeing this play out with all 9 Lipper boxes beating their indexes thus far this year.”

That’s created a great market for stock picking, with DeSanctis laying out two strategies he expects to outperform, especially among large cap stocks. 

“Valuation has been a driving force,” he said, and with value stocks on the rebound, cheap stocks should continue to do well as the economy expands.

Meanwhile, DeSanctis says things are starting to turn around for momentum stocks. Buying stocks that were already on the way up was very effective during the bull market of the 2010’s, but they have had a rough go of it since that bull market ended. 

“Over the last two months, they have regained some of their luster, and we think there is plenty of gas left in the tank,” he said.

He writes that valuation should continue to drive stock market performance in the months ahead, and the present environment is a good one for cyclical stocks as well. DeSanctis says that historically the top quintile of cheap stocks, or the 20% that are the cheapest, as well as the 20% with the most momentum, have both risen about 15% over the next year.

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DeSanctis has picked 21 stocks that have “Buy” ratings from Jefferies and score well in momentum and value metrics.

In the tech sector, these stocks were favorites:

ON Semiconductor

Within industrials:

Owens Corning

Among financial stocks:

Capital One

In the healthcare sector:

Acadia Healthcare
Align Technology
Charles River Laboratories

DeSanctis’ materials picks are:


His favorite consumer discretionary companies are:


In real estate:

Kilroy Realty

Simon Property Group.

And finally, US Foods in consumer staples and communication service giant Google round out the list.

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Source:: Business Insider


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