It’s been a tough year for stocks, as the Fed’s rate hike campaign and fears of a future recession hit growth-oriented areas of the market largely. But even though it’s around 2022, Jefferies says it’s time for investors to consider returning their money to some “fallen angels” with strong fundamentals and a decent growth path ahead. “While some of the reductions in growth stocks are likely to be structural, there are also cyclical components such as risks related to an economic slowdown,” the company wrote in a note to clients on Sunday. “In particular, stocks that have seen a significant correction and are now trading at lower valuations compared to their own history while still showing relatively better earnings momentum and quality characteristics than their peers are likely to see the most investor interest.” To find these so-called “fallen angels,” the company searched for quality names that have undergone a major correction, and are down more than 25% from 52-week highs. Although stocks have fallen and valuations are trading near 10-year lows, these names deliver a 10% return on invested capital, and more than a 15% return on equity over the next two years. Stocks also trade relatively cheaply, at less than 20 times the forward price-to-earnings and provide good momentum for future earnings. Here are some of the names that led to the cut: Several famous tech names have appeared, including Qualcomm. Semiconductor stock, which is down more than 40% this year, shared a poor forecast for the current quarter in its earnings results last week and said it implemented a hiring freeze. Despite the drop in the share price, the shares are expected to generate a 58.2% return on equity and 52.4% return on invested capital and trade cheap at 8.8 times forward earnings, Jefferies found. On the tech front, Jefferies’ screen also included PayPal stocks. Despite down 59% this year, the stock offers a 21.9% return on equity. While the payments company recently shared a weaker-than-expected revenue forecast for the fourth quarter, it said last week that it plans to add PayPal and Venmo cards to Apple Wallet. Jefferies found that stocks trade at nearly 17 times forward earnings. A large number of consumer discretionary stocks also made the cut, including Hasbro and Tapestry. Toymaker Hasbro, which tumbled about 38% in 2022, recently shared quarterly results that didn’t meet earnings expectations as it grapples with rising inventories and rising inflation. Stocks trade at about 12 times forward earnings. Home Depot, 3M, and Southwestern Energy were among the names on the Jefferies screen. CNBC’s Michael Bloom contributed reporting
Jefferies says buy these quality ‘Fallen Angels’ that are trading near 10-year lows
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”