Jefferies ‘Hunt for Value’ Seeks Stocks to Power Next Rally

(Bloomberg) -- The recovery rally in equity markets since March is based on technical factors rather than fundamentals, Jefferies strategists wrote in a note. But the team still believes the magnitude of the rebound is likely to be much sharper than previous rallies, and listed several global stocks that could be winners under this latest scenario.

The stock market is going through “an extreme confluence of various technical factors that are set to drive a significant upswing in traditional value stocks,” strategists led by Desh Peramunetilleke wrote. Macroeconomic indicators, earnings revisions, valuations and mean reversions are all supportive of a sharp rebound in value stocks, the strategists added.

The Jefferies strategists screened for stocks that have the potential to capture such a rebound, while avoiding companies that might prove “value traps.”

Although value stocks globally have for years underperformed growth, recently there’s been an uptick in value as markets extended the rally since the March lows.

Globally, Europe has the most to recover, driven by Austria, Spain and Italy, while Indonesia, the Philippines and Australia have been the laggards in Asia, the strategists wrote. Moreover, energy and banks stand out as the top two underperforming groups across regions, along with insurance and real estate, the team said.

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Here is the Jefferies list of global companies that screened as winners among value stocks:

• U.S.: ViacomCBS Inc., Energy Transfer LP, American International Group, Inc., Synchrony Financial, Citigroup Inc.
• Europe: Royal Bank of Scotland Group Plc, ING Groep N.V., Aviva Plc, Traton SE, Anglo American Plc
• Japan: Jtekt Corp., Yamaha Motor Co Ltd., Tokyu Fudosan Holdings Corp., Sumitomo Mitsui Financial Group Inc., Hitachi Ltd.
• Asia Pacific (excluding Japan): Oil and Natural Gas Corporation Ltd., Standard Chartered Plc, United Tractors Tbk, Posco, Mirvac Group

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