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Wall Street kicked off the last week of trading for 2021 with a pretty decent start to that Santa Claus rally, with more gains ahead for Tuesday, by the looks of it.
Still, there’s little to explain the rise in stocks, given volumes are drying up, wrote Michael Kramer, founder of Mott Capital Markets. “You have to go back to late August to find lower trading volumes. It seems like a combination of volatility selling and lower market participants causing buyers to just trip over themselves,” he said in a blog post.
Our call of the day is about less tripping and more of a simple path forward for investors in 2022. “There has been a longer-term trend where managers start to rotate into cheap stocks (attractive valuations) at the start of each calendar year,” wrote JC O’Hara, chief market technician at MKM Partners, in a note to clients.
“We ran a simulated trading model where we bought the lowest P/E [price/earnings] decile of stocks within the S&P 1500 and rebalanced each month. This simple strategy has outperformed the benchmark over the years. We found the returns were heightened over the first quarter of each year on average,” said O’Hara.
And using a simple P/E ratio for the valuation measure, shows a rotation into “attractive valuation names” is clearly already under way, he said. “Cheap stocks saw very little inflow this year until recently. We believe this rotation will continue into 2022.”
The research found attractively valued stocks within every sector, showing what MKM Partners found were attractive technical setups. So here goes a sampling of those stocks, sector by sector:
Consumer discretionary: Ford
F,
Genuine Parts
GPC,
SeaWorld
SEAS,
Six Flags Entertainment
SIX,
Toll Brothers
TOL
and Lowe’s
LOW.
Consumer staples: There are plenty of cheap companies breaking out across the board within that defensive sector. Constellation
STZ,
Walgreens
WBA,
Kroger
KR,
Archer Daniels
ADM,
Hostess Brands
TWNK
and Altria Group
MO
are just a handful of those names.
Energy. MKM has a equal-weight ranking on the sector, but sees plenty of upside in 2022. Halliburton
HAL,
Chevron
CVX,
Exxon Mobil
XOM,
Devon Energy
DVN,
Pioneer Natural
PXD
and Murphy Oil
MUR
are among a big list of stocks.
Financials. “Banks have been under pressure given the recent movement of yields. Other areas within this sector offer better charts in our technical opinion,” said O’Hara. Wintrust Financial
WTFC,
Zions Bancorp
ZION,
Fulton Financial
FULT,
Hancock Whitney
HWC,
People’s United
PBCT,
Prudential
PRU
and Provident Financial
PFS
are among those highlighted.
Healthcare: The strategist said MKM is warming up to the sector amid expansion of “positive breadth” — more stocks advancing than declining. AbbVie
ABBV,
AmerisourceBergen
ABC,
Cigna
CI,
Allscripts
MDRX
and Supernus Pharmaceuticals
SUPN
are just a few of the mentions.
Industrials: Northrop Grumman
NOC,
United Parcel Service
UPS,
Quanta Services
PWR,
Wabash National
WNC,
Norfolk Southern
NSC,
Knight-Swift
KNX
and Boise Cascade
BCC.
Technology: While the sector is generally expensive, there are plenty of bargains, especially within chip and communications equipment makers, said MKM’s O’Hare. Among the stock picks were Lumentum
LITE,
F5
FFIV,
Arrow Electronic
ARW,
Applied Material
AMAT,
Broadcom
AVGO,
Qualcomm
QCOM,
Micron Tech
MU,
Diodes
DIOD
and NetApp
NTAP.
Materials: Look for strength in chemicals, said MKM, with AdvanSix
ASIX,
Huntsman
HUN,
Mosaic
MOS,
Avient
AVNT,
Arconic
ARNC
and Freeport-McMoRan
FCX.
Real estate: MKM has an overweight rating on the sector. Attractive valuation picks include Plymouth Industrial
PLYM,
Retail Value
RVI,
Armada Hoffler
AHH,
Apple Hospitality
APLE,
Alexandria Real Estate
ARE,
American Finance
AFIN
and Gaming and Leisure
GLPI.
Finally, industrials, the worst performing sector year to date, noted O’Hare, but “with plenty of charts we feel comfortable owning into next year.” Edison International
EIX,
Entergy
ETR,
One Gas
OGS,
NiSource
NI,
Black Hills
BKH
and Sempra Energy
SRE
all get a mention.
The buzz
The Centers for Disease Control and Prevention has shortened its recommended COVID-19 isolation time to five days, from 10, if you are symptom-free. That’s as global cases hit a record on Monday of 1.44 million. Some good omicron news? Catching that coronavirus variant could mean enhanced immunity against the delta one, according to a study from South Africa.
Meanwhile, Apple
AAPL
has temporarily shut 11 stores in New York City, owing to a surge in the omicron variant.
Holiday flight disruptions are set to continue on Tuesday, not helped by a batch of winter storms.
Tesla shares
TSLA
are up again, after the electric-vehicle maker logged a 21% gain in the past four days. Keep an eye on this key Fibonacci retracement level.
Shares of Flotek Industries
FTK
are surging, after the Houston chemistry and data group said it has received an unsolicited indication of interest for a buyout of all or some of the company.
Videogame developer Riot Games, a unit of China’s Tencent
HK:700,
will pay $100 million to settle a 2018 gender-discrimination lawsuit with California regulators and female employees.
Investors will get the S&P Case-Shiller U.S. house price index for October ahead of the market open.
The markets
Stock futures
ES00
NQ00
are higher, following an upbeat session in Asia
JP:NIK
XX:000300.
Gold prices
GC00
are moving higher, but copper
HG00
is pulling back and oil prices
CL00
are slightly higher.
The chart
Blogger The Market Ear provides this (Refinitiv) chart that shows some late chasing going on among investors and the tech sector. The index is highs of a short-term range that has held since October. “Chasing the break out in a low liquidity tape isn’t what we do. Time to book some of those mean reversion short term trades and relax…” writes the blogger.
The Market Ear/Refinitiv
Random reads
Researchers will crack the lid on a much-sought after time capsule from 1887 later Tuesday.
“Digitally unwrapping” an Egyptian Pharaoh after 3,500 years.
Legendary rocker Ozzy Osbourne will launch his “CryptoBatz” nonfungible token collection in the new year.
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