Below CNBC Pro highlights the five best strategy notes that came across our desk on the week. Most of them are ways Wall Street plans to beat the market for the rest of the year. We also included a blackjack tip.
1) One of our favorite strategists is Thomas Lee, formerly of JPMorgan and now with his own firm. Lee believes that even after a ton of poor guidance figures during the recent earnings season, profits this year will be better than analysts expect. Capacity utilization is the real tell, according to Lee, and many companies indicated they would be raising spending this year. That means they are more confident than they are letting on.
"Bottom line, we see upside to Street consensus 2015 EPS of $120 and point to 8 percent rise in capex as evidence of better earnings power. History shows materials are early cycle to capacity utilization while technology and industrials are coincident. ... We have identified 17 stocks (11 Large-Cap, 6 SMid-Cap) looking at companies in materials, tech, or industrials sectors with positive implied revenue growth, healthy FCF yield, beat estimates last 2 quarters, and positive upside (per consensus target prices)."
Some of the stocks recommended by Lee are Alliance Data Systems, Microsoft, Textron and Kar Auction Services.
2) In a piece titled, "Preparing for rate hikes" equity strategist Jonathan Glionna at Barclays looks back at how markets reacted to the Federal Reserve beginning a tightening cycle. If the central bank increases rates this June, which is the consensus right now, Glionna has the stocks for your portfolio.
"The Federal Reserve is poised to begin normalizing interest rates. Our analysis indicates equities do well at the start of a rate hike cycle. Cyclical sectors such as energy, industrials, and materials have strong historical performance while high momentum strategies should be avoided. ... Considering the results of our sector and style analysis, we provide a list of 30 stocks that have low momentum and are in the energy, materials, or industrial sectors. These include Caterpillar, Emerson Electric, Exxon Mobil, Freeport-McMoRan and Occidental Petroleum, among others."
3) John Stoltzfus, chief investment strategist for Oppenheimer, believes easy central banks around the world will be the differentiating factor in global markets and U.S. stocks.
"We continue to favor cyclicals over defensive names on expectations that global growth will reassert itself as QE in Europe moves ahead, Japan's QE gains momentum and the economic expansion spawned by U.S. QE continues stateside ... consider quality cyclical stocks that offer attractive dividends and have potential for capital gains. In technology, Microsoft, Cisco and Intel offer dividends that have 12-month trailing respective yields above 2.5 percent. Microsoft and Cisco are Outperform-rated by Oppenheimer analysts, while Intel is rated Perform."
4) Brian Belski, chief investment strategist at BMO Capital Markets, reintroduces a term that tends to be overused by closet-indexing fund managers: GARP. But unlike that group, Belski backs up the "Growth At a Reasonable Price" mantra with some sound screening for stocks that truly meet those characteristics.
"Although S&P 500 performance tends to be above average surrounding Fed rate hikes, a significant number of stocks have delivered even more attractive returns historically. ... They tend to exhibit GARP characteristics judging by their below market FY2 PEG ratio ... a focus on these sorts of stocks has proven to be a viable longer-term strategy as well. ... All S&P 500 stocks with below index level FY2 PEG ratios have outperformed by an average of 4 percent beginning in 1990."
Among the stocks Belski recommends on that basis are Aetna, Biogen, Dollar General, Target and Union Pacific.
5) The equity strategy research business was practically invented by Laszlo Birinyi when he was at Salomon Brothers in the 1970s. Birinyi shares this great nugget in his latest "Reminiscences" note, now from his Birinyi Associates.
"Bill Gross spent some time after college playing blackjack. I once asked him as to his win/loss percentage which, he said, was 47–53 or thereabouts. In other words, he lost more often than he won. I then asked on the double down or large bets, how did you do there? On those, the record was reversed with him winning 53 percent of the time, which enabled him to make money. This is also why some months back when there was concern regarding small stocks, we argued that the market value of 60 percent of the small stock index (Russell 2000) totaled the value of Apple alone. So you could be right on Apple and wrong on 1,200 stocks and still be even."
