Fundstrat Global Advisors founder Tom Lee said Monday he believes markets have reached an inflection point during which value stocks will beat out growth stocks for the near term.
"I think a few things have happened that really build the case that we're in a six-to-12-month period where value will beat growth," he told CNBC's "Fast Money: Halftime Report."
On Friday, Lee sent a note to clients explaining why value will outperform momentum stocks, and he listed his top stock recommendations.
First on the list is the steepening of the Treasury yield curve, which Lee said is a "really reliable" leading indicator of the shift in value over growth for about six months. A steeper yield curve implies growth is happening faster, which means "growth is less scarce" and value stocks should outperform, he said.
Second, Lee said he sees the dollar flattening, which will benefit value names because they tend to be more heavily exposed to international markets. A stronger dollar makes U.S. goods more expensive overseas and dilutes foreign profits when they're repatriated.
Lastly, the health care sector has slipped from its leadership position, setting up a positive historical trend for value names.
"Health care, historically, it's pretty much been your poster child for growth. As health care starts to loose its leadership, five of five times since 1990, value starts to outperform growth," Lee said.
Asked whether an impending interest rate hike by the Federal Reserve would cause the dollar to strengthen once again, Lee said he is not a currency strategist so his call on the dollar should not be considered "high conviction."
However, he said there's still pent-up demand in United States. He pointed to the housing sector, noting that the current level of 1.1 million housing starts on an annualized basis is about 500,000 units below organic growth.
"If we're late cycle, the homebuilders should be rolling over. If we're midcycle the homebuilders will literally move with housing starts, and that's what they've been doing this year," he said. "Homebuilders are telling us we're only midcycle in housing."
As for his call that the will end the year at 2,325, implying the market will run up another 14 percent by year's end, he's not backing off.
"The reason I think so is I think the dollar effect on earnings is a bit of a mirage. It's transitory," he said. "As the dollar was strong it wiped out $10 of earnings this year. Already a third of that's coming back next year."
Further, hedge funds and mutual funds are reducing risk at levels not seen since July 2010 and October 2011, he said.
"Look at the three-month returns subsequently — 13 to 20 percent," he said. "I think we're going to melt up into the end of the year."