- Inigo Fraser-Jenkins of AllianceBernstein is giving investors a list of seven inexpensive "value" stocks that steer clear of the usual value standbys of financial and commodity stocks.
- Fraser-Jenkins says these stocks haven't made big gains in the recent value-stock rally, and they have some strong business fundamentals.
- That means they could be worth buying for reasons other than their low prices.
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Some of the least-popular stocks on Wall Street are finally feeling some love these days. That can be a good thing, but it creates a Catch-22: If all the cheaper stocks go up, where can investors find bargains?
AllianceBernstein strategist Inigo Fraser-Jenkins is tackling that question and directing his attention away from the usual answers. He thinks it's a good idea for investors and portfolio managers to put some money into value stocks, but urges them to be choosy.
When investors look for value stocks, he points out, they often focus on banks. But he's not sure that's the best way to apply that strategy.
"We are still skeptical of banks to meaningfully stage anything other than a tactical rally," he wrote in a note to clients. "They are tied to the economic cycle, to the default cycle that we still face and to the uncertainties of the evolution of policy."
He has doubts about energy companies as well. They've also become popular with some value managers because the stocks have plunged along with oil prices. But because the companies' performance is still fundamentally a bet on the health of the economy, Fraser-Jenkins is also excluding them from his field of possible targets.
He adds that instead of focusing on share prices or the economic cycle, he wants to recommend companies whose businesses have real potential and not just financial appeal based on their fallen stock prices.
"We hope to find stocks that (a) still have further to go after the recent value rebound and (b) have a case that is rooted in the fundamentals of the business rather than purely being a macro call," he said.
That leaves this list of seven US and European companies that Bernstein rates at "Overweight." They're ranked from lowest to highest based on how much they would have to rise to equal the firm's price target on each stock.
7. Kroger
Ticker: KR
Market cap: $25.3 billion
Target price: $37
Upside to target: 13.1%
Quote: "Kroger continues on its path to improve core performance and expand into what we believe is a winning omnichannel grocery solution. ... We expect this value will be more fully unlocked when the company makes a firm commitment to move forward with its Walgreens tests."
Source: AllianceBernstein
6. L3Harris Technologies
Ticker: LHX
Market cap: $43.2 billion
Price target: $243
Upside to target: 23.7%
Quote: "L3Harris offers the opportunity to invest in the defense industry at a low price point with relatively low risk. Among large defense contractors, we see L3Harris as having the best top line growth and highest margins."
Source: AllianceBernstein
5. Associated British Foods PLC
Ticker: ABF (London Stock Exchange)
Market cap: $19.2 billion
Price target: £2500
Upside to target: 31.1%
Quote: "AB Foods is a long-term quality compounder. With growing sales and increasing operating leverage on a high-fixed-cost business model, we expect to see top and bottom line improvement across each of the five businesses."
Source: AllianceBernstein
4. Darden Restaurants
Ticker: DRI
Market cap: $9.4 billion
Price target: $100
Upside to target: 37.1%
Quote: "Darden has consistently outperformed the casual dining industry over time ... Olive Garden and LongHorn had recovered 62% and 56% of prior volumes by mid-May through their off-premise platforms."
Source: AllianceBernstein
3. Accor SA
Ticker: AC (Euronext Paris)
Market cap: $7.7 billion
Price target: €35
Upside to target: 38.1%
Quote: "Accor is ... the market leader in every region ex-US and China and having a diverse portfolio of brands. Coronavirus has been a major shock to the sector, but Accor has the liquidity to absorb a prolonged shutdown and this will likely accelerate market share gains."
Source: AllianceBernstein
2. Delta Air Lines
Ticker: DAL
Market cap: $18 billion
Price target: $39
Upside to target: 43.4%
Quote: "We think the industry can survive with the competitive equilibrium intact ... When the health crisis has passed, we are confident that Delta will return to its position of leadership and be able to repair its balance sheet."
Source: AllianceBernstein
1. EasyJet PLC
Ticker: EZJ (London Stock Exchange)
Market cap: $3.7 billion
Price target: £1100
Upside to target: 44.7%
Quote: "EasyJet is taking bold strides in the corona crisis that should set it up for enhanced earnings power in the next cycle. ... [I]t is using the current environment as a burning platform to launch a far-reaching program that touches all areas of the business."
Source: AllianceBernstein
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