With the stock market having clawed back much of the fourth quarter sell-off, one metric that disturbs some is that many investors and especially quantitative strategy hedge funds have used the market strength to sell. Recent outflows have been cited as one huge reason for caution. With the first quarter almost over, it makes sense to look for stocks that have the ability to push higher and that may have lagged during the first part of 2019.
One area that definitely has lagged is materials, and Sean Darby, the innovative Chief Global Equity Strategist at Jefferies, recently turned positive on it and in a recent report noted this:
Although the materials sector has underperformed year-to-date, it is actually holding up a lot better given the perception that the US is moving into a late cycle, the US yield curve is flat and the greenback has been resilient. While the ISM manufacturing and some of the forward leading indicators have cooled, the sector’s resilience suggests that the global economy is still some way from moving into a recession. We turn modestly Bullish on materials.
Modestly bullish is hardly table-pounding, so Darby sticks with some of the top large capitalization materials stocks. Four are rated Buy at Jefferies, and they all look like solid plays for growth portfolios looking to add an allocation to the sector.
This blockbuster merger has emerged bigger and has been posting solid numbers recently. DowDuPont Inc. (NYSE: DWDP) is a diversified chemical company with $80 billion in sales in 2018, and it was formed as a result of the merger of Dow and DuPont in 2017.
The company is organized in three principal divisions — Agriculture (20% of EBITDA), Material Science (55%) and Specialty Products (25%) — which it intends to separate into three public entities by 2020.
The stock has underperformed this year, as concerns over trade issues with China continue to keep shares under pressure. The stock is down over 25% from highs seen in the fall of 2018.
Shareholders receive a 2.83% dividend. The Jefferies price target for the shares is $66, and the Wall Street consensus target is $66.91. The stock closed Tuesday at $53.68.
This company has rallied smartly off December lows but is still way below highs in the summer of 2018. Eastman Chemical Co. (NYSE: EMN) engages in the provision of specialty chemicals. It operates through the following segments.
The Additives and Functional Products segment includes chemicals for products in the transportation, consumables, building and construction, animal nutrition, crop protection, energy, personal and home care, and other markets. The Fiber segment offers cellulose acetate tow for use in filtration media, primarily cigarette filters.