U.S. markets closed out one of their best first halves since 1998 this week, with the S&P 500 adding 16% in the first six months of the year, and the Nasdaq and Dow both gaining more than 14%.
In this epic first half of 2021, investors shrugged off high inflation readings to buy stocks as optimism surrounding the economic rebound and continued accommodative policy from the Fed fueled bullishness.
Energy and financials were the best performing sectors in the first half with names like Marathon Oil (NYSE: MRO), Diamondback Energy (NASDAQ: FANG), Goldman Sachs (NYSE: GS), and American Express (NYSE: AXP) all surging far higher.
Not all stocks rallied higher in the first six months of the year, however, with familiar names like Clorox (NYSE: CLX), Peloton (NASDAQ: PTON), Netflix (NASDAQ: NFLX), and Take-Two Interactive (NASDAQ: TTWO) all underperform the rest of the market.
But as we kick-off the second half, these underperformers could be headed for a rebound.
Late last week, Credit Suisse analyst Douglas Mitchelson boosted his rating on Netflix from Neutral to Outperform with a $586 price target, citing normalizing subscriber growth in the fourth quarter and a strong slate of new content in the coming months.
Mitchelson said a recent survey conducted by the firm showed that consumers appreciate Netflix’s content and ad-free, easy to use product.
“We also asked our panel where they turn first when looking for content to watch, and Netflix users actually turn to Netflix first more often than with live TV – an important indication of how viewing habits have shifted,” Mitchelson said. “While this panel underscores Netflix’s enviable position in the U.S., we would expect similar results overseas given Netflix’s international content lead.”
Joule Financial’s Quint Tatro has his eye on Take-Two shares, which dropped 12% in the first half.
Tatro said the gaming company “has an exceptional balance sheet, no long-term debt, the grew earnings last year at 45%, trading at a forward multiple of 25, but what we like most is they’ve been compounding their book value over 30% per year. So it’s an incredible compounder and a growth stock trading basically at recent lows. We like that.”
Another growth name Blue Line Capital’s Bill Baruch likes now is Peloton.
The high-end exercise equipment company’s shares dropped 15% in the first six months of the year, but Baruch says the stock has potential.
“It’s a great company and I just think it’s gotten out ahead of itself a bit and it’s really come in,” Baruch said. “There’s a good inverse head and shoulders pattern which is bullish, it’s held the 50-day moving average off the right shoulder, $115 may be a good area to look to [as a buy].”
On the value side, Baruch said Clorox’s chart is looking constructive.
“When it came down to $180 it really came back on my radar… and you could look to be buying this right here, there’s definitely some construction out of a trend line,” Baruch said. “If you’re looking for more of a defensive name to add, this could be one.”
Tatro noted that Clorox “has really struggled of late,” but added that while the company “has a lot of debt… I think it’s fascinating that they continue to grow their free cash flow which we like. If we continue to see these inflationary concerns, obviously, they have price elasticity with their products, and they should be able to pass that onto the consumer and you get paid 2.5% to wait.”