Roll Out Those Single-Stock Picks as Upside Thins, Btig Says

(Bloomberg) -- Investors may want to consider turning to individual stock names given that performance is diverging more now than at any point in 2019, according to Btig LLC strategist Julian Emanuel.

There’s skepticism about whether shares can break out of a two-year-long S&P 500 Index “ceiling“ while the Cboe Volatility Index remains near its floor, Emanuel said. The VIX closed at a three-month low of 12.30 on Friday. The equity gauge charged to a new record that day and moved even higher on Monday, reaching 3,085.20 in early trading in New York. He sees a more narrow focus as a potential way to new gains.

“With both volatility (VIX at the floor) and correlation likely to remain low, single-stock ideas (rather than sectors or styles) are likely to drive further upside into 2020, particularly if positioning can act as a catalyst,” Emanuel wrote in a note Sunday. “Alpha over Beta.”

Given that outlook -- and the possibility that mutual-fund “tax-loss” selling before the Oct. 31 year-end could have depressed shares but would be done now -- it’s time to focus on 2019’s laggards, Emanuel wrote. With the VIX so low, options may be the best way to try to capture some of the upside, he added.

Using a screen of some Russell 3000 stocks that have underperformed in 2019 and have high short interest, Emanuel recommends going long risk reversals -- which involve selling a put option and buying a call -- on U.S. Steel Corp. and Macy’s Inc.

If that isn’t enough encouragement to buy into equities, Emanuel offers another statistic, perhaps somewhat tongue-in-cheek.

Looking at the rally from the October 1998 bear-market low to the March 2000 tech-bubble top and extrapolating that out to today (with the low last December as a start date), “you arrive at an S&P 500 of 3,950 by mid-2020,” he wrote. “Just sayin’ -- but it has been a five-sigma type of year thus far.”

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Vannucci, Dave Liedtka

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