Wall Street strategist Tom Lee has been telling clients to “stay bullish into the year-end.”
“We see upside in markets broadly into year-end as result of: (i) a strengthening economy; (ii) ‘beta’ chase as 2014 has been one of the worst years for fund manager performance so far, and (iii) seasonal factors,” he writes.
In a new 39-page research note, Lee identifies 10 stocks that he believes investors should hold into the end of the year.
Lee, now head of Fundstrat Global Advisors, said these ten stocks are “Value-Momentum.”
“Since the start of 2014, we believe a regime shift is taking place that favours ‘Value’ over ‘Growth’ in the next few years,” Lee said. “As the pace of economic growth improves, growth is less scarce hence, investors are likely not to pay up for it.”
Industry: IT Security
2015 Expected EPS: $3.99
2015 Expected P/E Ratio: 17.8x
'Attractive backdrop encompassing significant I.T. security breaches (most recently Home Depot, Target, and J.P. Morgan as well as several other high-profile banks) to be a net positive for the stock,' Lee said.
Industry: Retail Pharmacy
2015 Expected EPS: $5.07
2015 Expected P/E Ratio: 16.0x
'Same store sales growth is reaccelerating (+3.3% in 2Q vs. 1.4% in 1Q14 and 0.5% in 2Q13) with the Pharmacy segment up 5% (roughly half of total sales),' Lee said. 'Management is showing discipline in driving higher margin store-brand sales, which were up 80 bps as a percentage of front-store mix in 2Q14.'
Industry: Semiconductor equipment
2015 Expected EPS: $1.11
2015 Expected P/E Ratio: 13.2x
'Over half of the company's market cap is comprised of cash (approximately 54% as of 3Q14),' Lee noted.
2015 Expected EPS: $5.05
2015 Expected P/E Ratio: 12.0x
'Best in class department store operator - management has demonstrated its ability to execute over the past 12-18 months in a tough retail environment,' Lee said.
2015 Expected EPS: $3.02
2015 Expected P/E Ratio: 15.5x
'New leadership under CEO Satya Nadella is likely to lead to a leaner and more innovative Microsoft,' Lee said. 'Nadella has expressed interest in reshaping Microsoft's organizational structure with 'fewer layers of management...to accelerate the flow of information and decision-making.''
Industry: Engineering and Construction
2015 Expected EPS: $2.93
2015 Expected P/E Ratio: 10.0x
'Backlog is at its highest level since 2008 (18% higher y/y as of 2Q14, but understated by over $US500mn),' Lee said. 'TPC has disclosed many significant project awards over the past 12-18 months.'
2015 Expected EPS: $9.29
2015 Expected P/E Ratio: 13.1x
'Management has laid out ambitious revenue goals encompassing 50% revenue growth in the next five years (implies high single to low double digit CAGR) -- this is expected to be 100% organic,' Lee said.
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