Jefferies' Underperforming “Battleground” Stocks May be Up for a Win

Have we turned a corner? This inherently hopeful and largely rhetorical question has underscored a lot of the world's life these days. Has the coronavirus pandemic started retreating to the point where life looks like it once did and we can actually go back to work? Has the stock market stopped its hair-on-fire plummet and made a retirement possible again? There has certainly been some evidence that the manic—and some say “indiscriminate”—sell-off has come to a close, and opportunities are starting to appear. Jefferies recently released an array of what it called “battleground” stocks that may be in line for some gains, if the market is indeed starting a trend back to its old heights.

The Environment Is Right for New Hope

The good news immediately is that there are indeed reasons to hope that the market is trending back up. There's news of recovery out of China, though admittedly, that news is being met with skepticism on several fronts.

The still-ongoing pandemic is, of course, weighing on matters. With a range of new treatments emerging—like the surprise winner in hydroxychlorquine—as well as new vaccines in progress as well as ongoing social distancing that should be “flattening the curve”, there's hope there as well. Throw in the absolute conviction of governments worldwide to pump cash into the whole setup and it's decent ground for market recovery.

All of these points combined are bringing new hope to investors, and so, the issue of targets comes into play. Who's most likely to see recovery, and in the biggest way, if the general path is up? Enter Jefferies, via Eric Lockenvitz and Steven G. DeSanctis, equity strategists.

Every Sector Covered

The list emerging from Lockenvitz and DeSanctis points to a field of “defensive” stocks, stocks that are primarily held by long-term investors who buy in expecting a stock to appreciate over time. While these stocks managed to hold most of their value on the way down, the way back up has proven something of a lag.

Better yet, though, is that the list itself is extremely diversified. It features tech firms like Apple (NASDAQ: AAPL), Generac (NYSE: GNRC), Honeywell (NYSE: HON) and Intel (NASDAQ: INTC). It also features a few healthcare stocks like Eli Lilly (NYSE: LLY) and Abbott Labs (NYSE: ABT), financial stocks like JPMorgan (NYSE: JPM) and Wells Fargo (NYSE: WFC), and even some consumer-facing stock like PepsiCo (NYSE: PEP) and Walmart (NYSE: WMT)

Hedge funds, meanwhile, went in a largely different direction, and may have actually had a hand in the recent market meltdowns seen. Hedge funds went big on shares,  Lockenvitz and DeSanctis noted, in a move similar to those seen back in both December of 2018 and the fall of 2008. Their recovery will take something of a different path as they load back into their perennial favorites, including stocks like Visa (NYSE: V), Mastercard (NYSE: MA), and Microsoft (NASDAQ: MSFT).

Even A Highly Diversified Battleground is Still Risky

One of the most appealing points about the “battleground” stock listing is that it's widely diversified. There are tech stocks, healthcare stocks, consumer stocks, even some industrials and financials in there. These are all stocks that will have to be firing in order to see actual economic recovery, and each has taken a hit to some degree, so getting in now could represent an upward trend in the making. Abbott Labs' correction has recently come to an end, or so our own reports suggest.

However, the downside to this list is that there's still a lot of uncertainty floating around the market. Continued declines may well take place, especially if we continue to see shutdowns extending outward. Trying to get a Generac generator installed at this point may well be a nigh-impossibility; while electricians may be “essential workers”, getting one to actually come out to your house could be a problem. With unemployment already climbing and quite possibly going higher, the demand for health care and information technology could fall accordingly. The knock-on effects of sustained high unemployment rates could resonate throughout the field, and send even consumer staples PepsiCo and Walmart into decline.

Still, for those looking to get back into stocks in hopes of riding a second upward trend, this may be the time, and these may be the stocks. They're certainly sound enough under more normal circumstances, and the closer circumstances get to normal, the better the chance that full soundness returns.