Evercore ISI sees bear market bottom, and value in 23 stocks
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This two-week-long increase in the stock market is part of an “Non-Recession Bear Market’ bottoming process”, which has created opportunities in stocks that offer value for investors. It is possible to own select stocks at current price because margin debt has fallen by 2022, mergers, acquisitions, and corporate stock buybacks are stronger than ever. Earnings estimates for this and next years have not fallen significantly, with Evercore and Street consensus calling for an average of 9%+ growth for both. This is the opinion of Evercore ISI strategist Julian Emanuel who advised clients to reduce volatility through selling strength and buying weak, cash holding, and possibly options. The strategy also included looking for stocks that have seen their valuations fall and could be benefited from market leadership in transitioning to value stocks. Emanuel added another metric to his stock screen. They measured the strong free capital flow and shareholder returns profiles’, which help reduce volatility. Sorted by market cap, the result turned up almost two dozen stocks —ranging from Meta Platforms to PulteGroup. Emanuel pointed out that Meta, the parent of Facebook, “is on its way to becoming a value stock.” Meta is followed by Bank of America, Morgan Stanley & Charter Communications, Marathon Petroleum and Marathon Petroleum. Ten stocks were rated as outperformers by Evercore ISI. Four are rated in line and seven aren’t rated. Twelve of them made it onto the screen. The list includes seven stocks that Evercore calls Three V stocks. These are securities offering value, reduced volatility, and compressed valuation. Five consumer discretionary firms, three communication service providers, one industrial stock, and two energy companies are trailing them. Emanuel urged investors to continue buying upside calls on the iShares Russell 2000 ETF, ticker IWM, and selling downside puts in order “to position themselves for Small Cap outperformance.” Small Caps are attractively valued both absolutely and relative to the S & P 500.”
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