These 'Covid reversal' stocks are likely to outperform amid positive vaccine news, says Jefferies

Published Fri, Dec 4 20207:09 AM EST

(This story is for CNBC Pro subscribers only.) Jefferies is calling for a "Covid reversal" in 2021, highlighting the shift from outperforming megacap tech stocks to beaten down value stocks suppressed by the pandemic. With several vaccines in late-stage trials or waiting for FDA approval, investors are gearing up for a bounce back in normal consumer activity, which should help the economy rebound. "Momentum dominated for most of 2020 while value underperformed severely leading to extreme crowding in megacap tech. However, since the positive news on vaccine, a reversal is underway," Jefferies strategist Desh Peramunetilleke told clients. With earnings recovery accelerating, Jefferies believes the reversal trade could stretch until the first quarter of 2021, with some value stocks notching 15% upside potential. "Below we highlight the stocks that have been severely impacted by COVID and were underpeforming strongly prior to the vaccine announcement," Peramunetilleke said. "However, they have since started to outperform and are likely to deliver strong performance as when the vaccine news continues to come through." The listed stocks are global companies, with a market valuation above $2 billion, that have been severely impacted by the coronavirus pandemic. To qualify for the list, Jefferies picked stocks that underperformed before the Covid-19 vaccine announcement, dropping more than 15% between February and November. The equities then had to begin to outperform following the vaccine announcement, with a positive return more than 5% since November 9. Jefferies' list is comprised of primarily energy stocks. The sector, pressured by lower oil prices, was punished by the Covid-19 and is still down nearly 50% this year. However, as oil demand recovers, Jefferies sees the energy names rebounding. Chevron , ConocoPhillips , Marathon Petroleum , Valero Energy , Energy Transfer , Pioneer Natural Resources and Phillips 66 all make it on the Jefferies' "Covid reversal list." Jefferies also likes major U.S. bank Citigroup . Shares of Citi are down nearly 30% in 2020, but are poised to rebound alongside economic activity, according to Jefferies. In October, activist investing firm ValueAct called Citigroup "the world's best corporate bank." The hedge fund see's Citigroup's stock reaching $80 per share in the near-term and $150 per share in the long term. Jefferies also said Boeing is a name to own during the cyclical bounce back. Shares of the aircraft maker rose nearly 6% on Thursday after Reuters reported Irish budget airline Ryanair ordered 75 additional Boeing 737 MAX jets with a catalogue value of $9 billion. Shares of Boeing are down more than 27% in 2020. The Wall Street firm also said Southwest Airlines is a name to own as the economy returns to normal post-pandemic. Shares of Southwest are down more than 11% in 2020. General Electric , Allstate , Raytheon Technologies , AIG and Alfac also make the list. — with reporting from CNBC's Michael Bloom.

A pedestrian wearing a protective mask walks past a Citibank branch in New York on Friday, April 10, 2020.

Bloomberg

(This story is for CNBC Pro subscribers only.)

Jefferies is calling for a "Covid reversal" in 2021, highlighting the shift from outperforming megacap tech stocks to beaten down value stocks suppressed by the pandemic.

With several vaccines in late-stage trials or waiting for FDA approval, investors are gearing up for a bounce back in normal consumer activity, which should help the economy rebound.

"Momentum dominated for most of 2020 while value underperformed severely leading to extreme crowding in megacap tech. However, since the positive news on vaccine, a reversal is underway," Jefferies strategist Desh Peramunetilleke told clients.