Jefferies strategists have put together a list of mostly small-cap stocks that have strong momentum and are trading at attractive valuations.
The strategists, led by Steven DeSanctis, don’t see small-cap and mid-cap growth stocks as appealing.
“We sliced ‘growth’ stocks into a few buckets and found that, despite having been hammered, they are not cheap,” the strategists wrote in a commentary.
“The underperformance ranks as some of the darkest these stocks have seen since 2000, but they tend to take time to rebound.”
So the strategists came up with the investment firm's list, using momentum and valuation as screens. “Valuations have been a real driver of performance, while momentum has been gaining momentum,” they said.
The stocks ranked in the top quintile for momentum and moved up into that area over the past month. They also ranked in the top three quintiles for valuation.
The non-small-cap stocks on the list include Delta Air Lines (DAL), KeyCorp (KEY) and Advance Auto Parts (AAP).
The small-caps include Conn’s (CONN), a home-goods retailer; Green Plains (GPRE), an ethanol producer; Virtu Financial (VIRT), which provides securities trading execution; and Community Health Systems (CYH), which operates acute care hospitals.
As for Delta Air, Morningstar analyst Burkett Huey is bullish on the Atlanta carrier, too. He puts fair value at $57, compared with its recent price of $43.88.
“We think Delta is the highest-quality legacy carrier because it has been able to attract high-yielding business travelers through its product segmentation and credit card partnerships, primarily with American Express,” (AXP) he wrote in a commentary last month.
“Delta’s five-cabin segmentation strategy allows high-spending travelers to purchase premium options when they are able to.”
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