By Philip van Doorn, MarketWatch
Methanex Inc.
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. | /zigman2/quotes/207995377/composite MEOH | Chemicals | $18.75 | $36 | 92.0% | -50% |
| First Quantum Minerals Ltd. | /zigman2/quotes/209694942/delayed CA:FM | Metals/Minerals | $10.66 | $18 | 68.9% | -19% |
| Freeport-McMoRan Inc. | /zigman2/quotes/200215692/composite FCX | Metals/Minerals | $11.50 | $17 | 47.8% | -12% |
| Huntsman Corp. | /zigman2/quotes/202684633/composite HUN | Chemicals | $17.88 | $25 | 39.8% | -24% |
| Owens Corning | /zigman2/quotes/202113551/composite OC | Containers/Packaging | $54.06 | $75 | 38.7% | -16% |
| TopBuild Corp. | /zigman2/quotes/201668256/composite BLD | Building Products | $111.74 | $150 | 34.2% | 8% |
| ConocoPhillips | /zigman2/quotes/207605056/composite COP | Oil & Gas Production | $41.78 | $56 | 34.0% | -35% |
| HD Supply Holdings Inc. | Wholesale Distributors | $33.97 | $45 | 32.5% | -16% | |
| BASF SE | /zigman2/quotes/204280060/delayed DE:BAS | Chemicals | € 50.47 | € 66 | 30.8% | -20% |
| State Street Corp. | /zigman2/quotes/209758976/composite STT | 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 /zigman2/quotes/209694942/delayed CA:FM -2.94% of Toronto, with a closing price in Canadian dollars as of July 3, and BASF SE /zigman2/quotes/204280060/delayed DE:BAS -1.75% 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. | /zigman2/quotes/202796064/composite AIZ | Multi-Line Insurance | 100% | $100.50 | $140.33 | 40% | -23% |
| L3Harris Technologies Inc. | /zigman2/quotes/201997607/composite LHX | Aerospace & Defense | 95% | $172.00 | $240.11 | 40% | -12% |
| Mosaic Co. | /zigman2/quotes/203825795/composite MOS | Chemicals | 55% | $12.85 | $17.53 | 36% | -40% |
| Hartford Financial Services Group Inc. | /zigman2/quotes/207281914/composite HIG | Multi-Line Insurance | 78% | $37.50 | $50.69 | 35% | -37% |
| Delta Air Lines Inc. | /zigman2/quotes/200327741/composite DAL | Airlines | 63% | $27.72 | $36.31 | 31% | -52% |
| Lincoln National Corp. | /zigman2/quotes/205272400/composite LNC | Life/Health Insurance | 54% | $34.61 | $45.25 | 31% | -40% |
| Citigroup Inc. | /zigman2/quotes/207741460/composite C | Financial Conglomerates | 84% | $50.55 | $65.28 | 29% | -36% |
| Capital One Financial Corp. | /zigman2/quotes/204480509/composite COF | Major Banks | 74% | $61.15 | $77.89 | 27% | -40% |
| Northrop Grumman Corp. | /zigman2/quotes/205518355/composite NOC | Aerospace & Defense | 75% | $309.97 | $389.21 | 26% | -9% |
| Raytheon Technologies Corp. | /zigman2/quotes/203237915/composite RTX | Aerospace & Defense | 71% | $61.79 | $75.89 | 23% | -29% |
| Citizens Financial Group Inc. | /zigman2/quotes/205410375/composite CFG | Regional Banks | 80% | $23.76 | $28.97 | 22% | -40% |
| General Electric Co. | /zigman2/quotes/208495069/composite GE | Aerospace & Defense | 62% | $6.82 | $8.28 | 21% | -39% |
| Southwest Airlines Co. | /zigman2/quotes/201071949/composite LUV | Airlines | 60% | $34.12 | $41.22 | 21% | -37% |
| Bank of America Corp | /zigman2/quotes/200894270/composite BAC | Major Banks | 62% | $23.29 | $28.09 | 21% | -33% |
| MetLife Inc. | /zigman2/quotes/206319319/composite MET | Life/Health Insurance | 64% | $35.65 | $42.83 | 20% | -28% |
| Lockheed Martin Corp. | /zigman2/quotes/200691238/composite LMT | Aerospace & Defense | 57% | $362.00 | $429.53 | 19% | -6% |
| Fifth Third Bancorp | /zigman2/quotes/207561596/composite FITB | Regional Banks | 58% | $18.57 | $22.01 | 19% | -38% |
| Alaska Air Group Inc. | /zigman2/quotes/200972303/composite ALK | Airlines | 71% | $36.49 | $43.21 | 18% | -46% |
| Newmont Corp. | /zigman2/quotes/205356474/composite NEM | Precious Metals | 71% | $60.96 | $71.95 | 18% | 41% |
| Truist Financial Corp. | /zigman2/quotes/200481602/composite TFC | Regional Banks | 63% | $36.42 | $42.84 | 18% | -34% |
| Source: FactSet | |||||||
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