While the U.S. economy is expected to rebound sharply in 2021 as it emerges from the slump in 2020, there are also concerns about markets getting overheated. In 2020, there were concerns about growth stocks getting overheated. Now, a section of the market is concerned about the steep rise in value stocks. Credit Suisse has identified rebound stocks that will benefit from the rapid expansion of the U.S. economy. Should you own any of these?
For almost a decade, growth stocks have outperformed value stocks. Now, with the U.S. economy expected to grow at the strongest pace in years, investors have poured money into defensive names, which has led to a rally in these stocks.
Credit Suisse cyclical defensives
Cyclical stocks tend to be more volatile than the broader markets and their fortunes are closely tied with the economic activity. These names took a beating in the first half of 2020. The COVID-19 pandemic took a toll on the global economic activity as well as cyclical companies' revenues and profitability.
Credit Suisse is cautious on cyclical names amid concerns about their valuations getting stretched. The sharp rebound in the U.S. and the global economy is coming from the bottoms that we hit in 2020, so the growth isn't sustainable.
Credit Suisse is bullish on some of the defensive names which it thinks can benefit from the strong economic growth. These stocks are also expected to benefit in an inflationary environment.
Credit Suisse rebound stock list
Credit Suisse has identified five stocks that it thinks could outperform in the current macro environment. The stocks include:
- Universal Health Services (UHS)
- Laboratory Corporation of America Holdings (LH)
- HCA Holdings (HCA)
- Patterson Companies (PDCO)
- Constellation Brands (STZ)
Four of these companies are in the healthcare space and only Constellation Brands is a non-healthcare name in Credit Suisse's rebound stock list.
Looking at the individual stocks, Universal Health Services and HCA Holdings are hospital chains. In 2020, elective surgeries were barred in many jurisdictions. Most of the medical infrastructure went towards the COVID-19 pandemic. Given the impressive pace of COVID-19 vaccinations, we could see a rebound in optional procedures in 2021 due to the pent-up demand.
Laboratory Corp also got a buy rating from Credit Suisse analysts. The company benefited from increasing COVID-19 testing. According to the estimates compiled by TipRanks, LH stock has an average target price of $279.38, which is a premium of around 6 percent over the current prices.
Constellation Brands is a producer and marketer of beer, wine, and other alcoholic beverages. According to the estimates compiled by CNN Business, Constellation Brands has a median target price of $262, which is a 7 percent premium over the current prices.
Along with these five stocks, Credit Suisse is also bullish on utility companies that have their pricing linked to inflation.
Best companies to invest in recovery
Looking at the uptrend in the economy, there are several recovery stocks worth considering. Rolls-Royce (RYCEY) looks like a good beaten-down stock that you can buy to play the recovery. Disney is also a play on the recovery as its theme parks reopen. Hotel stocks like Marriott and Hilton are also good recovery plays.