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Deep Dive: 10 stock picks from Jefferies for investors who want to be ‘trendy’ as the economy recovers

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You might find it strange to associate the word “trendy” with stocks in the industrial, materials and financial sectors. Analysts at investment bank Jefferies have done just that in a report that looks forward through the economic-recovery cycle that started in June.

The catalyst for the Jefferies analysts was the Institute for Supply Management’s manufacturers’ purchasing managers index (PMI) released July 1. It rose to 52.6% in June from 43.1% in May. A reading above 50% indicates expansion. The non-manufacturers’ PMI made an even sharper turnaround, to a reading of 57.1% in June, up from 45.4% in May. That report was published July 6.

On July 5, analysts at Jefferies suggested sectors for investors to “stay trendy.”

“Typically, Industrials, Materials and Financials outperform once the ISM is >50,” the analysts wrote.

Those sectors have been out of favor through the worst of the coronavirus crisis and the U.S. stock market’s recovery. Here’s how the 11 sectors have performed this year, as the S&P 500 was down only 2.1% for 2020 (with dividends reinvested) through July 2:

Jefferies’ favorites

Jefferies actually listed 30 buy-rated stocks in the three sectors for their clients. So we’re listing the 10 with the most 12-month upside potential based on the analysts’ price targets. We’ll take a broader look at the three sectors after that.

Here are the 10 stocks rated “buy” by Jefferies analysts in their “How to Stay Trendy for the Next Cycle” report, with the most implied upside potential over the next 12 months:

Company Ticker Industry Current price Jefferies’ price target Implied 12-month upside potential Total return – 2020
Methanex Corp. MEOH, +6.29% Chemicals $18.75 $36 92.0% -50%
First Quantum Minerals Ltd. FM, +4.78% Metals/Minerals $10.66 $18 68.9% -19%
Freeport-McMoRan Inc. FCX, +8.08% Metals/Minerals $11.50 $17 47.8% -12%
Huntsman Corp. HUN, +0.81% Chemicals $17.88 $25 39.8% -24%
Owens Corning OC, +2.46% Containers/Packaging $54.06 $75 38.7% -16%
TopBuild Corp. BLD, +5.32% Building Products $111.74 $150 34.2% 8%
ConocoPhillips COP, +0.07% Oil & Gas Production $41.78 $56 34.0% -35%
HD Supply Holdings Inc. HDS, +1.91% Wholesale Distributors $33.97 $45 32.5% -16%
BASF SE BAS, +1.01% Chemicals € 50.47 € 66 30.8% -20%
State Street Corp. STT, +2.34% Regional Banks $63.13 $82 29.9% -19%
Sources: Jefferies Group, FactSet

Scroll the table to see all of the data. Click on the tickers for more about each company.

Data in the “current price” column is from the close July 2, except for First Quantum Minerals FM, +4.78% of Toronto, with a closing price in Canadian dollars as of July 3, and BASF SE BAS, +1.01% of Germany, with a closing price in euro as of July 3.

A deep dive into the S&P 500

The industrials, materials and financial sectors of the S&P 500 include 167 stocks. Here are the 20 with majority “buy” ratings among Wall Street analysts polled by FactSet that have the most upside potential based on consensus price targets:

Company Ticker Industry Share ‘buy’ ratings Closing price – July 2 Consensus price target Implied 12-month upside potential Total return – 2020
Assurant Inc. AIZ, +0.73% Multi-Line Insurance 100% $100.50 $140.33 40% -23%
L3Harris Technologies Inc. LHX, +0.09% Aerospace & Defense 95% $172.00 $240.11 40% -12%
Mosaic Co. MOS, +1.08% Chemicals 55% $12.85 $17.53 36% -40%
Hartford Financial Services Group Inc. HIG, +1.10% Multi-Line Insurance 78% $37.50 $50.69 35% -37%
Delta Air Lines Inc. DAL, -0.34% Airlines 63% $27.72 $36.31 31% -52%
Lincoln National Corp. LNC, +2.60% Life/Health Insurance 54% $34.61 $45.25 31% -40%
Citigroup Inc. C, +2.06% Financial Conglomerates 84% $50.55 $65.28 29% -36%
Capital One Financial Corp. COF, +1.60% Major Banks 74% $61.15 $77.89 27% -40%
Northrop Grumman Corp. NOC, -0.18% Aerospace & Defense 75% $309.97 $389.21 26% -9%
Raytheon Technologies Corp. RTX, +1.40% Aerospace & Defense 71% $61.79 $75.89 23% -29%
Citizens Financial Group Inc. CFG, +1.55% Regional Banks 80% $23.76 $28.97 22% -40%
General Electric Co. GE, +1.46% Aerospace & Defense 62% $6.82 $8.28 21% -39%
Southwest Airlines Co. LUV, -1.75% Airlines 60% $34.12 $41.22 21% -37%
Bank of America Corp BAC, +1.13% Major Banks 62% $23.29 $28.09 21% -33%
MetLife Inc. MET, +3.35% Life/Health Insurance 64% $35.65 $42.83 20% -28%
Lockheed Martin Corp. LMT, -0.08% Aerospace & Defense 57% $362.00 $429.53 19% -6%
Fifth Third Bancorp FITB, +1.15% Regional Banks 58% $18.57 $22.01 19% -38%
Alaska Air Group Inc. ALK, -0.41% Airlines 71% $36.49 $43.21 18% -46%
Newmont Corp. NEM, +0.67% Precious Metals 71% $60.96 $71.95 18% 41%
Truist Financial Corp. TFC, +0.79% Regional Banks 63% $36.42 $42.84 18% -34%
Source: FactSet