A four-day winning streak for the S&P 500
could be on the line Thursday, with some regrouping by investors after a hectic couple of weeks (and fresh troubles for China Evergrande, see below).
That’s as more information trickles in on the omicron coronavirus variant, which Wall Street hopes won’t turn into an economic steamroller.
“Between the vaccines and the antivirals, they’re going to get this under control,” Jack Murphy, the co-chief investment officer and portfolio manager at Easterly Investment Partners told MarketWatch in a Wednesday interview. Whatever is coming along the way, “emotional wear and tear,” and unfortunately more illness for some, “won’t change the velocity or the direction of the market,” he said.
Murphy provides our call of the day, with some stock picks in the value space that meet his “hidden value” criteria. They hail from a new mutual fund he headed up 15 months ago — Easterly U.S. Value Equity Fund, up 58% and besting the S&P 500 by nearly 8% since inception.
Murphy noted that the spread between valuation and growth stocks — at 12 basis points — has never been as wide as it is right now, even if there remains plenty of appetite for growth names.
“The case for value is, irregardless of sector, you can find great, great opportunities,” such as good companies that have seen earnings bottom out with COVID and have been recovering and continue to recover,” said Murphy.
Murphy’s bread and butter is all about buying “hidden stories inside of companies that attract valuations,” kicking off with General Motors
which he likes over Tesla
as an electric-vehicle play. One of GM’s growth qualities is its automated driving business, an example of a “hidden” story that he hunts down.
A second stock pick and recent purchase is Boeing
which falls under the category of a “classic reopening play” that will benefit from an improving economy and the coronavirus disease slowly going away, he said. The company is skilled at what it does, obviously, with a whole new generation of available aircraft, notes Murphy.
“You’ve got all these planes that Boeing is holding in inventory that they are getting ready to ship,” said Murphy, who expects China will recertify the 737 MAX sometime in the next six to nine months and also probably take Boeing’s 737 Dreamliner. “Somewhere out in the future you’ve got $50 billion in free cash flow. I think it’s going to be very interesting.”
His next pick is nVent Electric
“a play on the electrification of everything. They make enclosure tech, grid hardening, 5G rollout. These things are going to hook up to the grid so you’re going to have to put more power to electrical wires,” he said.
“They’ve done a series of very smart tuck-in acquisitions, their customers are getting healthy, whether it’s industrial oil and gas or utility customers,” Murphy said, adding that nVent’s incremental margin is strong, and the stock is cheap versus peers. “I expect it to continue to be a very good stock.”
Note, hedge funds have also been big fans of nVent this year.
A final stock pick from Murphy is Merck & Co.
is up 40% this year, likely helped by its COVID-19 vaccines, Merck is down 12%, perhaps overlooked for its lack of involvement. The stock trades at 12 times forward earnings, same as Pfizer, and both have attractive dividend yields, and each did deals to grow franchises going forward that have nothing to do with COVID, notes Murphy.
“We think [Merck] is pretty attractive. They’re a great franchise…they have a great vaccines portfolio, not a COVID portfolio, and they have a great animal health business,” he said.
‘Proceed with caution’: Here’s what Wall Street analysts see for the U.S. stock market in 2022
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