January could be a huge month for these hard-hit stocks: JPMorgan

 Where we left off before Christmas? A record session for the S&P 500 and so-so action from tech stocks.

The Nasdaq COMP, +0.85% is up a mere 0.7% this month, versus around a 3.5% rise for the S&P SPX, +0.62%, though on a year-to-date basis those gains are 21% and 25%, respectively. And with many traders perhaps taking the rest of the year off, that’s likely what we’ll get for the year.

Our call of the day comes from JPMorgan — one of the more bullish houses on Wall Street for the year ahead — which is advising investors to start snapping up riskier, or high-beta, stocks.

Driven by more hawkish central banks, the omicron coronavirus variant, forced deleveraging, poor year-end liquidity and general bearish sentiment, investors are “back to paying record premium” for low-volatility stocks, such as safe-haven and mega cap names. That has led to “sharp derisking and outright bear market” for higher-beta value and growth stocks, said a team led by the bank’s chief equity market strategist, Dubravko Lakos-Bujas.

“In particular, outside of the Big 10 stocks in the U.S., equity drawdowns and multiple derating have been severe,” he said, noting that the Russell 3000 RUT, +0.89% is down just 4% and the Nasdaq 7% from 12-month highs. But the average drawdown for constituents in those indexes are down 28% and 38%, respectively.

“Some argue this price action is a harbinger of late-cycle dynamics or at least an intra-cycle 10-20% market correction. In our view, conditions for a large selloff are not in place right now given already low investor positioning, record buybacks, limited systematic amplifiers, and positive January seasonals,” said Lakos-Bujas.

As for the current worries dragging the high-beta stocks south, JPMorgan strategists said the “market has taken the hawkish central bank and bearish omicron narratives too far.” They don’t see the Fed as behind the curve, and expect inflation pressures to normalize in coming months and quarters, and they don’t see a big growth hit from the omicron variant.

“More so, performance in the hedge fund space has been poor lately with many giving back multiple quarters of gains. This resulted in forced liquidations and deleveraging at a time of low liquidity, triggering extreme stock price action, especially across the High Beta stock complex,” said the JPMorgan strategists.

Stocks they like in particular are on the value and cyclical side, such as travel, leisure, hospitality, experiences (some of which aren’t doing so well for Monday). On the secular growth side, they like payments, e-commerce, gaming, cybersecurity and biotech. These stocks have already be derated 30% to 70%, noted the strategists, who add that historical analysis shows that high-beta stocks tend to see the biggest outperformance in January, via investor bottom fishing and tax-loss harvesting, etc.

“We expect the upcoming ‘January effect’ to be even more pronounced this time around given extreme positioning and sentiment, with a potential for a large High Beta squeeze. Funding could come from increasingly crowded low vol. stocks where investors are again paying record premium for that shelter,” said Lakos-Bujas.

Here are a few recently crowded, top momentum stocks, now at a “significant discount,” highlighted by the bank: New Fortress Energy NFE, +1.57%, MasTec MTZ, +0.60%, Plug Power PLUG, +1.80%, Peloton Interactive PTON, +2.14%, Under Armour UAA, +1.28%, Macy’s M, +1.09%, Gap GPS, +0.52%, Moderna MRNA, -0.55%, Novavax NVAX, -3.30%, AMC AMC, -0.56% and Pinterest PINS, +0.43%.

https://www.marketwatch.com/story/january-will-be-a-huge-month-for-these-hard-hit-stocks-why-nows-the-time-to-load-up-on-riskier-names-says-jpmorgan-11640607824