Dig a little and you’ll find better stocks than tech superstars, says Jefferies


More movement on US-China trade talks and lingering virus hopes are pushing markets higher for Tuesday.

It’s on the heels of a stellar start to the week, with Dow industrials finishing above 28,000 for the first time, and records for the Nasdaq COMP,
+ 0,60%
et S&P 500 SPX,
+ 1,00%.
It’s hard to look past the pillars of technology, which keep dazzling investors.

Our call of the day comes from Jefferies equity strategist Steven DeSanctis, who finds investors have become too obsessed with such big tech stocks like FAANG – Facebook FB,
+ 1,64%,
Apple AAPL,
+ 1,19%,
Amazon.com AMZN,
+ 0,69%,
Netflix NFLX,
and Google GOOGL belonging to Alphabet,
+ 0,60%.

    “I really don't think people realize that earnings growth and trend revisions have really broadened,” DeSanctis told MarketWatch.  “They're still very focused on the topic of working from home and the stocks that have the best records, that have income growth.  “When profit growth and revenue growth are hard to come by, you pay a huge premium for it, but if profit growth and revenue growth start to improve and expand next year, you start saying valuations will start to matter, ”he adds.  .  So, as income growth continues to broaden, investors will see a stock rotation move in that positive light, away from the big superstars, who may be less popular in the future due to valuations.  DeSanctis says he's increasingly bullish on economic indicators, which will be good for cyclical stocks, which tend to improve along with the data.  With that, materials inventories could start to outperform technology and healthcare, he says.  For starters, he takes a close look at mergers and acquisitions.  "I think other companies are going to question why they are public, so we're starting to see the first signs of M&A activity similar to what we saw in 1999 or 2000," says he said, adding that it could boost small cap stocks, cyclical names and value.  And while smaller domestic stocks have improved recently, they're not as cheap as they used to be, he says.  Names with higher income overseas could improve as the dollar weakens and European economies strengthen.  This leads to a handful of names he recently highlighted in a note that have substantial exposure overseas.  These are the sports retailer Foot Locker FL, 
    + 5,80%
  , services financiers Virtu Finl 'VIRT, 
    + 1,96%
  and Bank of NY Mellon BK, 
    + 1,87%,
  Bio-Rad Lab BIO health stocks, 
  and Agilent Tech A, 
  Equifax EFX manufacturers, 
    + 0,27%,
  Lincoln Electric LECO, 
    + 0,99%
  and Parsons PSN, 
    + 3,17%.

The market
Dow YM00, + 0,71%, S&P ES00, + 0,44% and Nasdaq NQ00, -0,11% futures are on the rise, alongside SXXP European equities, + 0,61%. In Asia, the markets generally ended higher.
The buzz
Digital payments provider Ant Group has filed a prospectus with the Hong Kong Stock Exchange for what is expected to be the world's largest initial public offering, with two listings in Hong Kong and Shanghai. China said Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin were involved in "constructive" trade negotiations, which the United States noted "progress" from both. sides. It's a change of tone from President Donald Trump, who said on Sunday that he would be open to decoupling from China. At the request of the stock division of iPhone maker Apple, three big names, including major oil company Exxon Mobil XOM, + 2,95%, are out of the Dow, to be replaced by the Salesforce CRM software group, + 0,44%, biotech Amgen AMGN, -0,87% and the Honeywell HON conglomerate, + 1,18% SHE, + 1,18% In Seoul, 27 people were infected with COVID-19 in a Starbucks SBUX, + 2,08%, but four masked employees were spared. And an infectious disease expert says not to panic over reports of the first viral re-infection. Case-Shiller home prices, consumer confidence and new home sales are all on the table for Tuesday. Donald Trump Jr. addressed the Republican National Convention warning that "the radical leftist policies of Democratic challenger Joe Biden would coldly halt our economic recovery."
Random readings
Kenosha, Wisconsin, sees another night of protests against the police shooting of a black man. Much needed news of joy. Pumpkin spice lattes are back. Need to Know starts early and is updated until the opening bell, but register here to have it delivered to your inbox. Be sure to check the Need to Know item. The emailed version will be sent out at approximately 7:30 a.m. Eastern Time. Follow MarketWatch on Twitter, Instagram, Facebook.


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