Evercore ISI says the bear market is bottoming and sees potential value in 23 stocks and small caps

Published Mon, Jun 6 20221:50 PM EDT

The two-week-long stock market upswing ``is part of a `non-Recession Bear Market' bottoming process" that's opened up opportunities in certain stocks offering value to investors. Helping to make the case for owning select stocks at current prices is that margin debt has fallen in 2022, mergers and acquisitions have revived, corporate stock buybacks "are stronger than ever" and, so far, earnings estimates for this year and next haven't fallen materially, with the Street consensus and Evercore's own calling for 9%+ growth in both years. That's the view of analysts led by Evercore ISI strategist Julian Emanuel, who told clients at the start of the week to manage volatility by selling strength and buying weakness, holding cash and maybe using options; look for stocks whose valuations have fallen and can benefit from market leadership transitioning to value stocks from growth names. Two other metrics Emanuel loaded into a stock screen measured for ``strong free cash flow and shareholder return profiles," both of which serve to dampen volatility. Sorted by market cap, the result turned up almost two dozen stocks —ranging from Meta Platforms to PulteGroup. Emanuel highlighted that Facebook parent Meta "is about to become a Value stock." After Meta, the top five stocks on the Evercore list are rounded out by Bank of America , Morgan Stanley , Charter Communications and Marathon Petroleum . Twelve of the stocks that turned up on the screen are rated outperform by Evercore ISI, four are rated in-line and seven are not rated by the firm. Sorted by sector, financials dominate the list of what Evercore called Three V stocks, offering Value, compressed Valuation and reduced Volatility, at seven names. They're trailed by five consumer discretionary companies, three communication services providers, three materials, two energy, two health care and one industrial stock. As part of his call, Emanuel reiterated advice to buy upside call options on the iShares Russell 2000 ETF (ticker IWM) and sell downside puts, "to position for Small Cap outperformance. Small Caps are attractively valued both absolutely and relative to the S & P 500."