By Barbara Kollmeyer
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 /zigman2/quotes/208911460/composite F -2.13% , Genuine Parts /zigman2/quotes/204247574/composite GPC -2.37% , SeaWorld /zigman2/quotes/210357674/composite SEAS -1.60% , Six Flags Entertainment /zigman2/quotes/208050417/composite SIX +2.03% , Toll Brothers /zigman2/quotes/201912487/composite TOL -4.04% and Lowe’s /zigman2/quotes/205563664/composite LOW -2.35% .
Consumer staples: There are plenty of cheap companies breaking out across the board within that defensive sector. Constellation /zigman2/quotes/207737284/composite STZ -1.07% , Walgreens /zigman2/quotes/203410933/composite WBA -5.08% , Kroger /zigman2/quotes/206215053/composite KR -4.08% , Archer Daniels /zigman2/quotes/203479136/composite ADM -1.39% , Hostess Brands /zigman2/quotes/201416450/composite TWNK -1.34% and Altria Group /zigman2/quotes/208895754/composite MO -0.88% 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 /zigman2/quotes/210488727/composite HAL -0.68% , Chevron /zigman2/quotes/205871374/composite CVX -0.38% , Exxon Mobil /zigman2/quotes/204455864/composite XOM +0.11% , Devon Energy /zigman2/quotes/209479244/composite DVN -0.66% , Pioneer Natural /zigman2/quotes/206736173/composite PXD +0.49% and Murphy Oil /zigman2/quotes/209008919/composite MUR -0.63% 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 /zigman2/quotes/207938027/composite WTFC -1.19% , Zions Bancorp /zigman2/quotes/207521274/composite ZION -1.23% , Fulton Financial /zigman2/quotes/204224869/composite FULT -1.10% , Hancock Whitney /zigman2/quotes/208577715/composite HWC -0.54% , People’s United , Prudential /zigman2/quotes/203750923/composite PRU -0.95% and Provident Financial /zigman2/quotes/207499634/composite PFS -0.71% 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 /zigman2/quotes/202428675/composite ABBV -0.57% , AmerisourceBergen /zigman2/quotes/201066379/composite ABC -0.62% , Cigna /zigman2/quotes/208431372/composite CI -1.08% , Allscripts /zigman2/quotes/208834131/composite MDRX -2.93% and Supernus Pharmaceuticals /zigman2/quotes/203126024/composite SUPN -1.63% are just a few of the mentions.
Industrials: Northrop Grumman /zigman2/quotes/205518355/composite NOC +0.02% , United Parcel Service /zigman2/quotes/201245396/composite UPS -2.74% , Quanta Services /zigman2/quotes/203420082/composite PWR +0.45% , Wabash National /zigman2/quotes/201427644/composite WNC -2.09% , Norfolk Southern /zigman2/quotes/200877725/composite NSC -1.80% , Knight-Swift /zigman2/quotes/206974312/composite KNX -5.43% and Boise Cascade /zigman2/quotes/200104224/composite BCC +0.02% .
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 /zigman2/quotes/204419752/composite LITE -0.02% , F5 /zigman2/quotes/209237881/composite FFIV -1.80% , Arrow Electronic /zigman2/quotes/207499625/composite ARW -0.36% , Applied Material /zigman2/quotes/209393259/composite AMAT -0.80% , Broadcom /zigman2/quotes/200646538/composite AVGO -1.48% , Qualcomm /zigman2/quotes/206679220/composite QCOM -2.62% , Micron Tech /zigman2/quotes/205710729/composite MU -0.99% , Diodes /zigman2/quotes/208712887/composite DIOD -0.87% and NetApp /zigman2/quotes/209297588/composite NTAP -0.88% .
Materials: Look for strength in chemicals, said MKM, with AdvanSix /zigman2/quotes/209068970/composite ASIX +1.33% , Huntsman /zigman2/quotes/202684633/composite HUN +0.41% , Mosaic /zigman2/quotes/203825795/composite MOS -2.04% , Avient /zigman2/quotes/205494819/composite AVNT -0.12% , Arconic /zigman2/quotes/216391721/composite ARNC +1.26% and Freeport-McMoRan /zigman2/quotes/200215692/composite FCX -0.52% .
Real estate: MKM has an overweight rating on the sector. Attractive valuation picks include Plymouth Industrial /zigman2/quotes/206716134/composite PLYM -4.15% , Retail Value , Armada Hoffler /zigman2/quotes/202277293/composite AHH -0.82% , Apple Hospitality /zigman2/quotes/208679636/composite APLE +0.09% , Alexandria Real Estate /zigman2/quotes/206543290/composite ARE -1.29% , American Finance and Gaming and Leisure /zigman2/quotes/202974631/composite GLPI -0.84% .
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 /zigman2/quotes/206923834/composite EIX -0.05% , Entergy /zigman2/quotes/208005291/composite ETR -0.06% , One Gas /zigman2/quotes/209798491/composite OGS +0.94% , NiSource /zigman2/quotes/208795963/composite NI -0.11% , Black Hills /zigman2/quotes/200702540/composite BKH -0.17% and Sempra Energy /zigman2/quotes/206074517/composite SRE +0.22% all get a mention.