2020 is fast approaching and that has many investors wondering what stocks to add to their portfolios for the new year.
According to research by CNBC, brokerages are overwhelmingly overweight one sector in particular heating into next year.
“Sectors like Financials (the largest portion of traditional value indices, should lead the way,” BMO Chief Investment Strategist Brian Belski wrote in a note. “Earnings growth for the broader market is slated to improve in 2020, which has historically benefitted value performance. …Given the longer-term outperformance cycles of value relative to growth, we believe the market may soon be entering the very early stages of a ‘value cycle.’”
For investors who have been tracking the decline in long-term interest rates, it may come as a surprise that major brokerages are bullish on financials. But according to Bank of America’s Savita Subramanian, despite banks’ profit margins coming under pressure this year as the Federal Reserve reduced its benchmark rate three times, the sector could be poised for a rebound.
“The sector’s performance has been increasingly correlated with interest rates, but the sector receives no credit for quality and cash return,” Subramanian wrote in a note. “It has the highest weight in the Russell 1000 Value index and could benefit from a sustained Value rotation.”
RBC analyst Gerard Cassidy recently told clients that U.S. “bank stocks need to be owned” heading into the new year. Cassidy sees a parallel between the current environment and the monetary policy of 1994 – 1998 when the Fed tightened and then cut rates, and bank stocks outperformed as a result.
According to Cassidy, each of these five stocks come with strong fundamentals, attractive valuations, and will return significant capital to shareholders.
Of the five, Wall Street analysts are overall most bullish on KeyBank shares. Their average price target indicates 21.56% upside over the next twelve months.