By Barbara Kollmeyer, MarketWatch
Our call of the day comes from Jefferies’ equity strategist Steven DeSanctis, who finds investors have become too fixated on those big name tech stocks like the FAANGs — Facebook /zigman2/quotes/205064656/composite FB -0.30% , Apple /zigman2/quotes/202934861/composite AAPL +2.11% , Amazon.com /zigman2/quotes/210331248/composite AMZN -0.85% , Netflix /zigman2/quotes/202353025/composite NFLX -0.13% , and Alphabet-owned Google /zigman2/quotes/202490156/composite GOOGL -1.83% .
“I really don’t think people realize that earnings growth and the trending revisions have really broadened out,” DeSanctis tells MarketWatch. “They’re still very focused on the work-from-home theme and those stocks that have the best balance sheets, that have revenue growth.
“When earnings growth and revenue growth is hard to find, you pay a huge premium for that, but if earnings growth and revenue growth start to get better and broader next year, you start to say that valuations will start to matter,” he adds.
So as revenue growth continues to broaden out, investors will see a rotation of stocks moving into that positive light, away from the big superstars, who may be less popular down the road due to valuations. DeSanctis says he is getting more upbeat on economic indicators, and that will be good for cyclical stocks, which tend to improve alongside data. With that, materials stocks could start to outperform tech and health care, he says.
For starters, he’s looking closely at mergers and acquisitions. “I think other companies are going to call into question why they’re public, so we’re starting to see early signs of M&A activity pick up similar to what we saw in 1999 or 2000,” he says, adding that this could boost small-cap stocks, cyclical and value names.
And while smaller domestic stocks have seen improvement recently, they are not as cheap as they were, he says. Those names with higher overseas revenue may improve as the dollar weakens and Europe’s economies strengthen. That leads to a handful of names he recently highlighted in a note that have substantial exposure overseas.
Those are sports retailer Foot Locker /zigman2/quotes/204092533/composite FL -1.99% , financials Virtu Finl’ /zigman2/quotes/204693277/composite VIRT +0.62% and Bank of NY Mellon /zigman2/quotes/200171276/composite BK -2.05% , health-care stocks Bio-Rad Lab /zigman2/quotes/207953537/composite BIO +0.57% and Agilent Tech /zigman2/quotes/207081878/composite A +2.52% , industrials Equifax /zigman2/quotes/208789454/composite EFX +1.35% , Lincoln Electric /zigman2/quotes/200454581/composite LECO -0.0087% and Parsons /zigman2/quotes/212182498/composite PSN -0.91% .
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