Formerly laggard U.S. stocks poised to keep leading in 2016: Fundstrat – Metro US

Formerly laggard U.S. stocks poised to keep leading in 2016: Fundstrat

Formerly laggard U.S. stocks poised to keep leading in 2016: Fundstrat
By Chuck Mikolajczak

By Chuck Mikolajczak

NEW YORK (Reuters) – Gains for equities in 2016 have been buoyed by stocks that lagged during the bull market, a trend that analysts at Fundstrat say is likely to continue in the back half of the year as they have not come close to recouping their underperformance.

In a recent note to clients, Fundstrat Global Advisors managing partner Thomas Lee identified 16 industry groups which underperformed the S&P 500 <.SPX> for at least four consecutive years, including those from the energy, materials and telecom sectors. While those groups have become leaders in 2016, Lee said they still have only recovered a small portion of their cumulative underperformance and have room to run higher.

“There is a tendency for people to think something has been bad for 10 years, then it’s good for six months and it is over,” said Lee.

“Our thinking is if something is turning, it is symmetric.”

Big names such as Cisco Systems , Caterpillar , IBM , Verizon Communications , Procter & Gamble and Exxon Mobil and 10 other companies fall into the lagging groups and also have another advantage, according to Lee. They pay stockholders more than their bondholders which gives investors a margin of safety.

Of the 15 stocks that met Lee’s criteria, only Ralph Lauren Corp has underperformed the S&P 500 this year, down about 11 percent. Helmerich & Payne , up roughly 27 percent for 2016, has shown the best performance.

But even with the S&P 500 recently hitting new highs, Lee said there is still the possibility stocks could face a bumpy road, as August tends to be the month with the biggest selloffs over the past six years, including declines of about 5 percent in 2010, 2011 and 2015.

Investors could see plenty of reasons to pull back on equities next month as the United Kingdom commences its exit from the European Union, or “Brexit,” a meeting by the U.S. Federal Reserve looms on the horizon in September and the U.S. election campaign heats up.

(Reporting by Chuck Mikolajczak; Editing by Cynthia Osterman)

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