Don't overlook these underappreciated stocks in the second half, analysts say

Published Sat, Jul 3 20218:19 AM EDT

The second half of the year is under way and there are a bunch of stocks that are still not getting quite enough attention, according to Wall Street analysts. These companies have several positive catalysts in the months aheads and analysts say investors shouldn't underestimate them. CNBC Pro combed through the top Wall Street research this week to find some of the more underappreciated stocks for the remainder of 2021. They include: Caterpillar, Apple , Performance Food, Sysco , US Foods and Stryker. Stryker Stryker is poised for a second half surge, JPMorgan said in a note this week. "We continue to view Stryker as a standout within our large-cap coverage heading into 2H21 as it represents one of the few companies that has managed to pair a premium growth profile with consistent top-tier execution spanning the last few years," analyst Robbie Marcus and his team said. The medical technology company is home to a diverse array of businesses including neurotechnology and orthopedic products, but there's one area that investors may be overlooking, Marcus wrote. The firm said Stryker's Medical unit known as MedSurg had "value-creating tuck-in M & A, sales specialization and market leadership in narrow high-growth markets." Marcus wrote that a recent meeting with the company's management left him feeling more bullish about the unit which he called the "underappreciated backbone of Stryker's premium growth profile." The company continues to innovate as well and Stryker seems to be one step ahead of the competition, Marcus added. "With a better understanding of these key underlying markets and Stryker's positioning in them, we are even more bullish on the company's ability to sustain growth at a premium," he went on to say. Shares are up 8.3% this year. Performance Food, Sysco and US Foods It's been a rough year for the big three food suppliers as the pandemic wreaked havoc across the companies' businesses. But now things may be looking up for Sysco, US Foods and Performance Food, according to Wells Fargo. "We remain very optimistic on the post-COVID earnings power of the food service space overall and continue to see upside in all three stocks," analyst Edward Kelly wrote. The firm said if recent management commentary is to believed, investors could be in for a big rest of the year. "PFGC recently indicated that total company sales in the most recent week were $100 million above 2019 levels, USFD stated that both chain & independent volumes were above 2019 levels in April, & SYY is serving 10% more independent doors than pre- COVID," he said. Kelly also noted there were some silver linings as a result of the pandemic including cost inflation, cost cutting and further share gains. "Overall, we continue to see potential for an underappreciated earnings recovery starting in the second half of 2021," Kelly said. Shares of Performance Food are up 0.8% this year while US Foods is up 13% in the same time period. Sysco shares are up 3% this year. Caterpillar The time is right to buy shares of Caterpillar, Credit Suisse analyst Jamie Cook said in a note this week. The construction equipment company was added to the firm's top picks list and Cook said he sees several positive catalysts coming up this year for the industrial "bellwether." "We believe CAT's 2020 earnings are at a cyclical trough and see potential for most markets improving in FY2021," he wrote. Cook noted that Caterpillar is a key beneficiary of what he called the "cyclical bounce" in oil and gas as well as increased construction activity. "CAT should benefit from the North America Construction and Resource equipment replacement cycle, which are recovering in tandem and both positive to mix," he said. However, don't overlook the power of a stronger commodities outlook, according to Cook. "Commodity prices including copper, iron ore and nickel have been strengthening and the depressed mining business should begin to recover," Cook said. Caterpillar has many other "underappreciated" attributes like strong cash flow generation and earnings power, which should excite investors, he added. Caterpillar shares are up 19.6% this year. Stryker- JPMorgan, Overweight rating "We continue to view SYK as a standout within our large-cap coverage heading into 2H21 as it represents one of the few companies that has managed to pair a premium growth profile with consistent top-tier execution spanning the last few years. ... .We view Medical as the underappreciated backbone of the company's premium growth with a focus on: value-creating tuck-in M & A, sales specialization, market leadership in narrow high-growth markets. With a better understanding of these key underlying markets & SYK's positioning in them, we are even more bullish on SYK's ability to sustain growth at a premium to MedTech in 2022+. Apple- Morgan Stanley, Overweight rating "Investors are concerned about AAPL's FY22 growth prospects given the expectation for an iPhone s-cycle and waning cyclical WFH tailwinds. We're not as concerned and see a good LT buying opportunity with shares trading at 24x EV/FCF. ... .In the near-term, we believe the June quarter will be stronger than originally expected as iPhone and iPad builds are tracking ahead of our model and we increase June Q revenue and EPS estimates 3-5% as a result. ... .Ecosystem engagement growth sustainability underappreciated by investors." US Foods, Performance Food, Sysco- Wells Fargo, Overweight ratings "We remain very optimistic on the post-COVID earnings power of the food service space overall and continue to see upside in all three stocks. ... .PFGC recently indicated that total company sales in the most recent week were $100 million above 2019 levels, USFD stated that both chain and independent volumes were above 2019 levels in April, and SYY is serving 10% more independent doors than pre- COVID. Overall, we continue to see potential for an underappreciated earnings recovery starting in the second half of 2021." Caterpillar- Credit Suisse, Outperform rating "We believe CAT's 2020 earnings are at a cyclical trough & see potential for most markets improving in FY2021. CAT should benefit from NA Construction & Resource equipment replacement cycle, which are recovering in tandem & both positive to mix. CAT could benefit from a cyclical bounce in energy markets towards the latter part of FY2021. ... .CAT is an industrial bellwether with a long cycle reflected in sales which are highly correlated with the ISM PMI on a 3-month lag. CAT has undertaken significant restructuring since the prior industrial recession reducing $1.8B in structural cost & 25M of square foot capacity & earnings power and cash flow generation is underappreciated in our view."

Caterpillar Inc. excavators are displayed for sale at the Whayne Supply Co. dealership in Louisville, Kentucky, U.S., on Monday, Jan. 27, 2020.

Luke Sharrett | Bloomberg | Getty Images

The second half of the year is under way and there are a bunch of stocks that are still not getting quite enough attention, according to Wall Street analysts.