Stocks rallied for a second day in a row Friday, looking to cap out the week with 3% gains.
But, there are still unloved corners of the market, including real estate investment trusts, energy and financials, which remain sharply lower for the year.
David Trainer, CEO of investment research firm New Constructs, sees three prime picks in some of the hardest-hit areas of Wall Street.
"I just believe in the resilience of the American spirit and that airlines will someday get back closer to normal. But in particular, it's a long-term view of the valuations," Trainer said Thursday on CNBC's "Trading Nation."
Trainer said not only is Southwest undervalued relative to the S&P 500, its strong fundamentals and command of its cash position ($9 billion in cash at the end of April) make it attractive here. Southwest trades at eight times trailing earnings compared with a 19 times multiple for the S&P 500.
"In any scenario where we get anywhere back close to normal, the stocks that we've been talking about are going to do extremely well because -- Simon Property is another one – the prices of its profits will never get back to [previous] levels," said Trainer.
Mall operator Simon Property, for example, trades at nine times trailing earnings -- that is far cheaper than its 50 times multiple fives years ago.
Trainer also likes D.R. Horton, what he sees as a more diversified play in the homebuilding space compared with rivals Lennar and PulteGroup. D.R. Horton is down 9% this year, better than the 17% drop by the XHB homebuilder ETF.
"Passive investing and index investing is a crowded trade. You can't make money in that anymore because indices are already too expensive, and all that money is piled into a few popular names. But the companies that we like ... these are all stocks that have been sort of babies thrown out with the bathwater," Trainer said. "Their valuations imply that we won't be even back to levels that we saw in our economy five years ago. So, we have a permanent reduction of five years of economic growth. That's what those valuations say. And all I'm saying is, in any scenario better than that, those stocks are going to make you a lot of money."
Disclosure: Trainer owns Simon Property and D.R. Horton.