JPMorgan's chief U.S. equity strategist says investors should be looking to buy virus laggards

Published Mon, Aug 10 20202:12 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Key Points

JPMorgan's chief U.S. equity strategist said Monday he sees an opportunity for investors to buy stocks that have been significantly impaired by the coronavirus pandemic.
Dubravko Lakos-Bujas said on CNBC's "Halftime Report" that these laggards could lead the market in the next six to 12 months.
"It's very hard to time this by the day, by the week but I think this is what people need to be thinking about in the coming period," he said.

(This story is for CNBC Pro subscribers only.) JPMorgan' s chief U.S. equity strategist said Monday he sees an opportunity for investors to buy stocks that have been significantly impaired by the coronavirus pandemic, contending these laggards may lead the market in the next six to 12 months. "The difficult part is really timing this. It's very hard to time this by the day, by the week, but I think this is what people need to be thinking about in the coming period," Dubravko Lakos-Bujas said on CNBC's "Halftime Report." While value more broadly may assume the mantle of market leadership, Lakos-Bujas said the most attractive names lie in the "Covid recovery themes." Some of those sectors include consumer staples and industrials, along with some materials, energy and financial stocks, he said. He stressed the importance of finding find well-run companies within those areas that have good balance sheets. "I"m not talking here about big new structural investment. I think a lot of these secular growth, long-duration names remain very well supported," he said. "But I think that right now, the next six to 12 months, I think we need to be thinking more about some of these laggards that have pretty good balance sheets and could see much higher degree of upside earnings surprise than the growth names, which I think at this point, have pretty much most of the goodies priced in." Lakos-Bujas acknowledged there have been three other times during the coronavirus pandemic where value stocks have showed signs of turning the corner, only to fizzle out. By his recollection, he said this would be value's fourth attempt at "making a comeback." "The first three attempts have pretty much gotten reversed, and I think the main reason for that has been just simply, let's say, lingering Covid fears," he said. "But I do now think you're basically seeing an increasing number of signals that are coming together and suggesting that Covid recovery theme has, or should have, more legs." Lakos-Bujas said he believes the concern about the June and July surge in Covid-19 cases in the U.S. "should be abating" and pointed to continued progress on the development of a coronavirus vaccine. He also contended the recent batch of corporate earnings are "pretty much marking an inflection point in the profit cycle." "I think for a lot of these laggards, and value names, the worst pretty much is over," he said, while adding there has been a healthy upturn in global business cycles that support a further economic recovery. Another area that has not gotten enough attention, in Lakos-Bujas' view, is inflation expectations . "Everybody is talking about how rates need to move up for value to work, but I'm not sure that rates are the best signal right now," he said. "Because of all the central bank intervention that's happening and keeping rates structurally lower, inflation expectations are moving sustainably higher, and historically this has been a very strong positive for value." Lakos-Bujas emphasized that the opportunity for the stocks that have under-performed during the market rebound also stretches into next year, when he expects the U.S. employment picture to have further recovered. "I do think that we should continue to see improvement, and I think that bodes very well for a lot of these laggards," he said.

Dubravko Lakos-Bujas. Head of U.S. Equity Strategy, JP Morgan

Scott Mlyn | CNBC

(This story is for CNBC Pro subscribers only.)

JPMorgan's chief U.S. equity strategist said Monday he sees an opportunity for investors to buy stocks that have been significantly impaired by the coronavirus pandemic, contending these laggards may lead the market in the next six to 12 months.

"The difficult part is really timing this. It's very hard to time this by the day, by the week, but I think this is what people need to be thinking about in the coming period," Dubravko Lakos-Bujas said on CNBC's "Halftime Report."