JPMORGAN'S TOM LEE: These 10 Stocks Have High Emerging-Market Exposure... And We'd Buy Them

JPMorgan chief U.S. equity strategist Tom Lee believes the weak start stocks have had this year presents a buying opportunity.

In particular, Lee says companies with high sales exposure to emerging markets offer value after getting hit relatively hard in the sell-off that has taken its cue in part from EM.

“Stocks with low EM exposure trade at 18.9x [earnings],” writes Lee in a note to clients.

“This is 3.3 turns above those with high EM exposure. This 3.3x premium is well above the 10-year average of 1.6x and suggests that a contrarian stance would argue that high EM exposure may be the better risk/reward today.”

Lee suggests the following stocks for those who want to play this theme. They’re all in cyclical sectors, their forward P/E ratio is less than 16x, they’re all expected to deliver positive 2014 revenue growth, they’re all overweight-rated buy JPM analysts, and they’re all trading below JPM analysts’ price targets:

  1. NCR Corporation (NCR): 25% sales exposure to emerging markets, +1.3% YTD return
  2. TTM Technologies (TTMI): 32% exposure, -6.8% YTD
  3. Tupperware Brands Corporation (TUP): 43% exposure, -18.5% YTD
  4. Lam Research Corporation (LRCX): 61% exposure, -9.3% YTD
  5. KLA-Tencor Corporation (KLAC): 52% exposure, -6.5% YTD
  6. Intel Corporation (INTC): 57% exposure, -8.2% YTD
  7. ON Semiconductor Corporation (ONNN): 57% exposure, -0.1% YTD
  8. TAL International Group (TAL): 43% exposure, -25.3% YTD
  9. Eastman Chemical Company (EMN): 31% exposure, -4.6% YTD
  10. E. I. du Pont de Nemours and Company (DD): 30% exposure, -5.3% YTD

However, he also provides a word of caution, advising clients to pay attention to developments in the high-yield debt market.

“In particular, if HY markets widen and reach 50 basis points, we would be more mindful of the risk for further downside. The reason is that typically a widening in HY presages either worsening liquidity and/or greater perceived risk — both undermine the case for stocks. We will continue to monitor this metric closely in coming weeks.”

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