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Bank of America said investors should snap up value stocks in three specific sectors.
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The company says it is poised to outperform as the Federal Reserve cuts interest rates while corporate profits continue to accelerate.
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Savita Subramanian, head of US equity strategy, refers to the situation as a “rare double whammy of stimulus”.
The Fed doesn’t typically cut interest rates while corporate profits are still growing. But this is the situation we are seeing now, which Bank of America sees as creating a unique opportunity for investors.
Savita Subramanian, head of US equities and strategy at Bank of America, described the situation as a “rare double whammy of stimulus.” And in that Appearance on CNBCShe suggested some adjustments to the portfolio and recommended investors get into certain types of value stocks.
Value stocks — or those that are trading below where fundamentals say they should be — outperform when earnings rise and interest rates fall, as investors become less concerned about hedging and embrace names with higher upside that have fallen out of favor. This is happening now, which means money flows will favor value, Bank of America said.
In this context, she said that the real estate, financial, and energy sectors are three sectors worth monitoring. These value industries provide quality and income.
the Large capital real estate sector It benefits from Wall Street’s massive investments in data centers, a necessary component of the infrastructure for building artificial intelligence. Meanwhile, Subramanian noted that real estate’s exposure to turbulent office space is not worth worrying about.
Meanwhile, Finance It has become a higher quality sector than it was in 2008, and is currently suffering from capital “starvation”. The same can be said about energyShe said.
“These companies have basically corrected themselves since the last decade, and now they’re getting rid of free cash flow, focusing on cash yield. I think those are some areas of the market that you really want to put pressure on,” Subramanian told CNBC.
In a similar way, Scott Krohnert, US equity strategist at Citi, also highlighted financials and energy in a report Bloomberg interviewHe described the latter as a “paradoxical opportunity.”
In Subramanian’s view, part of the appeal of value sectors is the high profits they offer.
As the Fed’s tapering cycle drives down short-term yields, money market investors will look for new sources of income. Dividend yielding stocks will benefit from this shift, Subramanian said.
“I think about where these assets that are in retiree accounts and money market funds are going, and I think they are going to go to safe, stable income,” she said. “And that’s more value than growth.”
she previously noted Dividend yields are particularly attractive in real estate. Since 2008, real estate gains have doubled the proportion of high-quality market value.
According to the latest Bank of America note, individual or institutional investors do not appear to have adjusted to the value trend yet, with portfolios leaning more toward long-term growth stocks and defensive exposure.
Hedge funds also appear skeptical about China’s recent surge, which began last week after Beijing pushed through new stimulus.
Subramanian expects this to be the beginning of a long-term story, and suggested that investors keep an eye on the materials sector.
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