Tom Lee says cyclical companies are 'the new growth stocks' during Covid recovery

Published Tue, Mar 23 20217:04 PM EDT

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

Tom Lee sees more room for cyclical stocks to run higher as the U.S. economy recovers from the coronavirus pandemic . In an interview Tuesday on CNBC's "Fast Money," the co-founder of Fundstrat Global Advisors likened the current investment landscape after a devastating, year-long pandemic to previous points in global history. "Post war, cyclical companies become the new growth stocks," Lee said. "That's what happens. It happened in Iraq and the Middle East. It happened in Japan. It happened in Korea after the Korean War. It happened in the U.S. after World War II and the Korean War. This is a post-war environment." Lee's comments Tuesday came after a down session for Wall Street , with all three major U.S. equity indexes finishing in the red. Among the stocks leading the decline were those that stand to benefit from an improving economic situation post-Covid, such as industrial firm Caterpillar , as well as American Airlines and United Airlines . Lee, among the earliest strategists on the Street to turn bullish after last year's plunge on virus fears, has for months favored what he dubbed "epicenter stocks," defined as those in industries hardest-hit by the pandemic. "I think the way investors will make money owning epicenter or any stock in the next 12 months is really taking advantage of both structural tailwinds and then the capacity to surprise on the upside," Lee said Tuesday. Specifically within the epicenter areas, Lee said plays on commodities, such as energy companies, and names connected to the travel industry are places to be. "I think a lot of the travel-related names have great businesses, whether it's casinos, cruises, hotels, some of the airlines," Lee added. "These are the names that are going to have the capacity to really surprise on the upside ... because of operating leverage." There has already been a considerable rotation into cyclical sectors this year, while growth stocks that were standouts in 2020 like Zoom Video have lagged. The move has coincided with rising bond yields, with the yield on the 10-year Treasury hitting a 14-month high last week after beginning 2021 below 1%. Lee said a change in mindset may be in order for some investors after a long period of outperformance from growth stocks in sectors like technology. "For the last 20 years, interest rates have fallen and therefore, growth stocks have done well," said Lee, the former chief equity strategist at JPMorgan. "But if you look back at from 1950 all the way to 1982 ... value stocks crushed growth year over year, even as the [price-earnings] rose, because value companies — commodity sensitive, asset-heavy — just generated much better earnings growth because of the reflationary environment and I think that's the dynamic growth investors have to keep in mind," Lee added. "The new growth stocks are going to be these cyclical companies."

Thomas Lee, Fundstrat Global Advisors

Scott Mlyn | CNBC

Tom Lee sees more room for cyclical stocks to run higher as the U.S. economy recovers from the coronavirus pandemic.

In an interview Tuesday on CNBC's "Fast Money," the co-founder of Fundstrat Global Advisors likened the current investment landscape after a devastating, year-long pandemic to previous points in global history.

"Post war, cyclical companies become the new growth stocks," Lee said. "That's what happens. It happened in Iraq and the Middle East. It happened in Japan. It happened in Korea after the Korean War. It happened in the U.S. after World War II and the Korean War. This is a post-war environment."