With stocks holding near record-high territory, one market researcher is scouring Wall Street for the best picks and names to avoid.
David Trainer, CEO of stock research firm New Constructs, said that the market rally has pushed many stocks to risky levels.
“We’re looking at the more value-oriented names that have not participated in this big melt-up that has, we think, pushed a lot of stocks to a place where they’re truly unfit for a fiduciary as distinct from a momentum trader,” Trainer said.
Three stocks to buy
Those pockets of opportunity, he noted, could be found in relatively undervalued stocks such as General Motors, Hershey, and Intel.
“All these stocks are trading as if their profits will permanently decline by a significant amount. They are industry leaders. They have high returns on invested capital, and they have been cash-flow machines. Have they been part of the sexy work-from-home or [electric vehicle] theme? Not so much. But we think they’re going to be just as good performers from here on out and much better than some of these what we call unfit-for-fiduciary tech stocks,” said Trainer.
Those three stocks are a mixed bag. General Motors has outperformed the market this year, rising by 15% compared with the S&P 500′s 12% gain. Hershey has underperformed with a 4% increase in 2020. Intel, plagued by weak data centre demand and chip delays, has fallen 24%.
Currently, General Motors stock price is US$42.82 per share, The Hershey Company is trading at US$149.40, and Intel at US$45.62.
Three stocks to sell
Trainer is avoiding some of the buzziest stocks this year: Wayfair, Peloton and Beyond Meat. Online furniture company Wayfair and exercise cycle-maker Peloton have benefited from the stay-at-home surge this year. Wayfair has risen 165% and Peloton 261%. Beyond Meat, up 72% this year, has been bid up on high growth potential.
“Three stocks that are just sort of crazy nosebleed valuations,” said Trainer. “All these firms are positioned with almost no competitive advantage, except you could say a first mover advantage, but it’s in a space where the competition is large and growing and the barriers to entry are relatively low.”
Wayfair trades at 107 times forward earnings; Peloton 217 times; and Beyond 619 times. The S&P 500, by comparison, trades at 23 times.