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Jefferies: 6 'Underdog' Stocks to Thrive in Economic Recovery

Jefferies: 6 'Underdog' Stocks to Thrive in Economic Recovery
(Juzaili Alias/Dreamstime)

By    |   Tuesday, 18 August 2020 09:10 AM

Jefferies recently picked six stocks they see as “underdogs” that look well-positioned to capitalize on an economic recovery.

Boeing (BA), Marriott (MAR), Sysco (SYY), and Live Nation (LYV) all operate in industries that have been hit hard by the pandemic, but they have potential for significant gains versus consensus forecasts through 2022, Jefferies reported.

Two other underdog stocks that the firm likes are casino operator Caesars Entertainment (CZR) and day-care operator Bright Horizons Family Solutions (BFAM), Barron’s reported, citing research by Jefferies.

Jefferies analyst Sheila Kahyaoglu expects Boeing stock to recover, reaching $270 over the next year. "The biggest driver will be the MAX’s return to the skies, ideally with regulatory approval coming soon," Barron's cited Jefferies as predicting. Boeing stock was at about $172 early Tuesday.

Meanwhile, Marriott shares are down 37% this year to recent prices around $96 amid the near-collapse in business travel. “The bull case is that leisure travel fills in some of the revenue gap, business travel slowly resumes, and Marriott manages to leverage its working capital and financial incentives with franchise hotel operators to increase its free cash flow. The company also generates fee revenue from co-branded credit cards, and it is benefiting from increased scale and unit growth from its Starwood acquisition,” Barron’s explained. Analyst David Katz expects the stock to hit $125.

Food service supplier Sysco, down 31% this year to around $59, needs restaurants to keep reopening, Barron’s explained. However, Jefferies analyst Christopher Mandeville argues that the stock is worth $88. Under new CEO Kevin Hourican, Sysco is positioning itself to reaccelerate sales growth as the restaurant industry returns to normal, he writes.

Live Nation, the world’s top concert organizer, a wait-and-see stock. But Jefferies analyst Khoa Ngo sees gains, expecting the stock to hit $55 from recent prices around $51. "Live Nation has a solid balance sheet and opportunities to gain share, especially from smaller promoters that don’t survive the pandemic," Barron’s said.

Caesers is a major force on the Las Vegas Strip, the most productive gambling market in the U.S., according to Katz. Caesars has other revenue generators, including professional sports betting. Profitability should also improve with $800 million in cost synergies from the merger and non-Vegas revenue reaching 95% of prepandemic levels in fiscal 2021, Katz writes. He sees the stock hitting $54, up from recent prices around $39.

Bright Horizons was thriving before the pandemic as a day-care operator for large corporations. "The recovery trade in the stock assumes that day-care centers gradually reopen," Barron's cited Jefferies as predicting. Analyst Hamzah Mazari expects 85% of centers to reopen by the end of the third quarter, running at 75% to 80% of pre-pandemic levels. He sees the stock reaching $165, up from recent prices around $130.

Meanwhile, Goldman Sachs Group Inc. is the latest firm to boost its year-end price target for the S&P 500, as a relentless rally off the March lows leaves strategist predictions in the dust.

David Kostin raised his forecast for the benchmark U.S. gauge to 3,600 from 3,000, joining the likes of Yardeni Research founder Ed Yardeni and RBC Capital Markets’ Lori Calvasina who’ve upped their forecasts in recent weeks, Bloomberg explained.

The rally has caught many investors by surprise, with the S&P 500 now sitting at 3,372.85 -- 51% off its March lows -- and threatening to eclipse its February closing record. Kostin cited Goldman’s above-consensus U.S. growth expectations keyed off positive news on the vaccine front.

“As the last few months have demonstrated, equity prices depend on not just the expected future stream of earnings but the rate at which those earnings are discounted to present value,” Kostin wrote in a recent note.

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Jefferies recently picked six stocks they see as “underdogs” that look well-positioned to capitalize on an economic recovery.
underdog, stocks, economic, recovery
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2020-10-18
Tuesday, 18 August 2020 09:10 AM
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