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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:
| S&P 500 sector | Total return – 2020 |
| Information Technology | 15.7% |
| Consumer Discretionary | 9.5% |
| Communications Services | 1.9% |
| Health Care | 0.6% |
| Materials | -5.0% |
| Consumer Staples | -5.2% |
| Real Estate | -6.5% |
| Utilities | -8.9% |
| Industrials | -14.4% |
| Financials | -24.3% |
| Energy | -36.2% |
| Source: FactSet | |
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, +6.98% | Chemicals | $18.75 | $36 | 92.0% | -50% |
| First Quantum Minerals Ltd. | FM, +5.44% | Metals/Minerals | $10.66 | $18 | 68.9% | -19% |
| Freeport-McMoRan Inc. | FCX, +9.69% | Metals/Minerals | $11.50 | $17 | 47.8% | -12% |
| Huntsman Corp. | HUN, +0.39% | Chemicals | $17.88 | $25 | 39.8% | -24% |
| Owens Corning | OC, +2.47% | Containers/Packaging | $54.06 | $75 | 38.7% | -16% |
| TopBuild Corp. | BLD, +5.38% | Building Products | $111.74 | $150 | 34.2% | 8% |
| ConocoPhillips | COP, -0.50% | Oil & Gas Production | $41.78 | $56 | 34.0% | -35% |
| HD Supply Holdings Inc. | HDS, +1.01% | Wholesale Distributors | $33.97 | $45 | 32.5% | -16% |
| BASF SE | BAS, +0.79% | Chemicals | € 50.47 | € 66 | 30.8% | -20% |
| State Street Corp. | STT, +2.64% | 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, +5.44% of Toronto, with a closing price in Canadian dollars as of July 3, and BASF SE BAS, +0.79% 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, +1.45% | Multi-Line Insurance | 100% | $100.50 | $140.33 | 40% | -23% |
| L3Harris Technologies Inc. | LHX, +0.99% | Aerospace & Defense | 95% | $172.00 | $240.11 | 40% | -12% |
| Mosaic Co. | MOS, +0.62% | Chemicals | 55% | $12.85 | $17.53 | 36% | -40% |
| Hartford Financial Services Group Inc. | HIG, +2.18% | Multi-Line Insurance | 78% | $37.50 | $50.69 | 35% | -37% |
| Delta Air Lines Inc. | DAL, +2.20% | Airlines | 63% | $27.72 | $36.31 | 31% | -52% |
| Lincoln National Corp. | LNC, +3.40% | Life/Health Insurance | 54% | $34.61 | $45.25 | 31% | -40% |
| Citigroup Inc. | C, +2.80% | Financial Conglomerates | 84% | $50.55 | $65.28 | 29% | -36% |
| Capital One Financial Corp. | COF, +2.27% | Major Banks | 74% | $61.15 | $77.89 | 27% | -40% |
| Northrop Grumman Corp. | NOC, +0.85% | Aerospace & Defense | 75% | $309.97 | $389.21 | 26% | -9% |
| Raytheon Technologies Corp. | RTX, +1.95% | Aerospace & Defense | 71% | $61.79 | $75.89 | 23% | -29% |
| Citizens Financial Group Inc. | CFG, +2.48% | Regional Banks | 80% | $23.76 | $28.97 | 22% | -40% |
| General Electric Co. | GE, +2.27% | Aerospace & Defense | 62% | $6.82 | $8.28 | 21% | -39% |
| Southwest Airlines Co. | LUV, +0.33% | Airlines | 60% | $34.12 | $41.22 | 21% | -37% |
| Bank of America Corp | BAC, +1.73% | Major Banks | 62% | $23.29 | $28.09 | 21% | -33% |
| MetLife Inc. | MET, +3.78% | Life/Health Insurance | 64% | $35.65 | $42.83 | 20% | -28% |
| Lockheed Martin Corp. | LMT, +0.33% | Aerospace & Defense | 57% | $362.00 | $429.53 | 19% | -6% |
| Fifth Third Bancorp | FITB, +1.66% | Regional Banks | 58% | $18.57 | $22.01 | 19% | -38% |
| Alaska Air Group Inc. | ALK, +1.75% | Airlines | 71% | $36.49 | $43.21 | 18% | -46% |
| Newmont Corp. | NEM, -0.54% | Precious Metals | 71% | $60.96 | $71.95 | 18% | 41% |
| Truist Financial Corp. | TFC, +0.96% | Regional Banks | 63% | $36.42 | $42.84 | 18% | -34% |
| Source: FactSet | |||||||
