Investors may wish to examine the relatively inexpensive stocks that Wall Street experts like following a large first half of 2021.
Analysts examined three widely followed valuation metrics by investors. Based on the following three criteria, we identified S&P 500 stocks that are trading at or near their three-year average valuations:
Its average forward price-to-earnings ratio over the last three years has been 5% or less.
Its average forward price-to-cash flow ratio over the last three years was 5% or less.
Its average forward price-to-sales ratio over the last three years has been within 5% or less.
We filtered that pool for stocks that are well-liked on Wall Street; we looked for names that have at least 60% of analysts recommending a buy. We identified stocks with at least a 10% upside to their average 12-month price target among those stocks.
Take a look at analysts’s screen of historically cheap stocks that the Street likes.
analysts’s list includes a number of utilities stocks. The screen is made by American Electric Power, Edison International, and NiSource.
“As the market potentially enters a new phase with more frequent and larger corrections, defensive value sectors such as utilities, consumer staples, and real estate may benefit,” wrote Ed Clissold of Ned Davis Research in a mid-year outlook report released on June 14.
Value stocks trade at prices that are perceived to be relatively low in relation to future earnings, sales, and cash flow. Defensive stocks are those that tend to be stable regardless of how the market performs overall.
Health care stocks and their consistent cash flows also make an appearance on analysts’s screen. Hologic, a women’s health-focused medical technology company, McKesson, a health-care distributor, and Vertex Pharmaceuticals, a biopharmaceutical company, are among those on the list.
“We continue to believe that there is some good relative value and some good relative growth in health care. And this is an area where you are not taking advantage of the macro factors. It tends to be more idiosyncratic…so health care appears to be a good place to be,” ClearBridge Investments portfolio manager Margaret Vitrano told analysts.
Amazon, the tech behemoth, also appears on analysts’s screen. In 2021, the retail stock is expected to rise by more than 7%. In comparison, Big Tech peers Facebook and Google-parent Alphabet are up about 25% and 40%, respectively. However, given Amazon’s lagging performance this year, investors may view its price as appealing.
“Amazon has clearly disrupted the online and brick and mortar retail space, and shows no signs of slowing their push for dominance across categories,” said Ike Boruchow of Wells Fargo in a note released Wednesday.
Victoria Greene likes oil stocks
An investor for high net value customers, Victoria Greene, stated that investors may overreact to this time of increased inflation and should utilize it to take advantage of the equities in the energy industry.
In remarks to a House committee on Tuesday, Federal Reserve Chair Jerome Powell reiterated his belief that current price increases are temporary and downplayed the possibility of a return to 1970s-style inflation.
“Seeing inflation as more transitory means it may not be the calamitous event that everyone expects it to be,” Greene said.
Meanwhile, she anticipates a rise in oil prices from which investors can profit. Energy stocks have already gained more than 45 percent in 2021, putting them on track for their best year in more than three decades.
“Hundred-dollar oil is coming back, baby,” Greene predicted.
On Wednesday, Brent crude prices surpassed $75, while WTI crude was trading at $73.
Greene singled out Chevron as a top pick, noting that its $14 billion in capital expenditures is 35% lower than in 2019. Diamondback Energy and Devon Energy were recommended to more aggressive investors.
“You’re seeing all of this supply being constrained — not just by OPEC Plus, but also by a reduction in capital expenditures by oil and gas companies,” she added. “As demand rises and supply does not rise as quickly, you will see energy in a nice sweet spot.”
Greene is not alone in her call for an increase in oil prices. Earlier this week, Bank of America predicted that oil prices would rise above $100 per barrel next year, citing pent-up travel demand and predicting that consumers would prefer private cars over public transportation.
Apple (NASDAQ: AAPL)
The firm said concerns about the iPhone’s cycle are overblown.
“In the near-term, we believe the June quarter will be stronger than originally expected as iPhone and iPad builds are tracking ahead of our model,” said Huberty.
Huberty said Apple can drive low-teens annual revenue growth and high-teens annual earnings growth between 2020 and 2023.
Morgan Stanley also said it sees growth in Mac and services as more secular than cyclical. The firm disagrees that investors should be concerned that demand for products and services that benefited from the work and learn from home environment is cyclical and will trail off in 2022.
“Growth in products such as iPad and Mac, and digital services like the App Store accelerated during COVID but in some cases this growth is more secular in nature,” said Huberty.
Shares of Apple rose nearly 1% in premarket trading on Thursday.