Buy these cyclical stocks 'in the shadows' before they're 'exposed by the sun,' says Jefferies

Published Sun, Feb 16 202010:01 AM EST

(This story is for CNBC PRO subscribers only.) A slowdown in global manufacturing numbers has unfairly hit some cyclical stocks, creating compelling medium and long-term buying opportunities, Jefferies said Thursday. In a note titled "looking for stocks in the shadows before they're exposed by the sun," the firm identified stocks with company specific stories that haven't been rewarded by the market. Jefferies said they have "compelling medium term/long term company specific or secular drivers," and "weakness in the industrial economy has distracted investors from those drivers." The firm also said that as PMI numbers improve and Coronavirus fears ebb, a supportive economic backdrop as well as strength at the individual company level will power these stocks higher. Here are some of the names: Freeport-McMoRan "The outlook for Freeport over the medium term is encouraging as production growth and associated unit cost reductions will lead to a positive inflection in free cash flow and a much higher FCF generation in the long run, even if the copper price does not materially increase." The firm has a buy rating on Freeport-McMoRan and a $17 target on the stock, which is 39% above where it currently trades. Marathon Petroleum "MPC is in the midst of a multi-pronged transition in which it is pursuing a slew of strategic & managerial changes...these efforts have the potential to unlock significant value in MPC shares." The firm has a buy rating on Marathon Petroleum and a $74 target, which implies a 26% upside ahead. ON Semiconductor "ON is the Jefferies semiconductor desk top midcap pick...Shares have fallen YTD, partly on industrial weakness and an inventory correction. Still ... valuation and margins will see a boost from two of our secular themes, IoT devices and a better analog industry owing to consolidation." The firm has a buy rating on ON Semiconductor , and the $27 target is 26% above where it currently trades. United Technologies "UTX offers an attractive SOTP [sum of the parts] story with the spins of Otis and Carrier set to be completed in early Q2 and pending merger with RTN soon after ... Shares have traded well but still trade at a ~25% discount to peers assuming peer average multiples for Otis and Carrier." The firm has a buy rating on United Technologies , and its $185 target is 21% above where it currently trades.

A man cleans a PW1000G geared turbofan engine developed by MTU Aero Engines AG and Pratt & Whitney, a unit of United Technologies Corp., at the Singapore Airshow held at the Changi Exhibition Centre in Singapore.

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(This story is for CNBC PRO subscribers only.)

A slowdown in global manufacturing numbers has unfairly hit some cyclical stocks, creating compelling medium and long-term buying opportunities, Jefferies said Thursday.

In a note titled "looking for stocks in the shadows before they're exposed by the sun," the firm identified stocks with company specific stories that haven't been rewarded by the market.

Jefferies said they have "compelling medium term/long term company specific or secular drivers," and "weakness in the industrial economy has distracted investors from those drivers."

The firm also said that as PMI numbers improve and Coronavirus fears ebb, a supportive economic backdrop as well as strength at the individual company level will power these stocks higher.