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10 stock picks from Jefferies for investors who want to be ‘trendy’ as the economy recovers

U.S. industrial activity perked up in June — three sectors tend to outperform when that happens

A Methanex methanol production facility in Trinidad. Analysts at Jefferies expect the company’s stock to nearly double over the next 12 months.

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