Get your sell-off shopping lists ready.
Monday’s marketwide pullback — which took a turn for the better after the Dow erased a sharp loss and Congress passed its long-awaited Covid-19 relief bill — inspired two traders to think about the top names they’d buy on dips heading into the new year.
The new Covid strain in the U.K. spurring new travel restrictions raised concern on Wall Street.
“We have been waiting for a correction,” Nancy Tengler, chief investment officer at Laffer Tengler Investments, told CNBC’s “Trading Nation” on Monday.
“This isn’t really a correction, it’s just a modest pullback,” Tengler said. “We think we will get one in the first quarter and would use it as an opportunity to really pick up stocks that are focused on the consumer.”
Tengler’s three pullback plays are Walmart, Starbucks and Roku. Walmart and Starbucks are set to benefit from consumer behavior “either way” — pandemic or not — while the streaming-savvy Roku should benefit “in a different way,” she said.
Quint Tatro, founder and chief investment officer of Joule Financial, said that despite the market’s “tremendous rebound” in the afternoon, investors should proceed with caution after Monday’s “short-lived” pullback.
“I think we’ve got a tremendous amount of performance anxiety out there. Not too many managers are up in line with the S&P this year, the Nasdaq,” Tatro said in the same “Trading Nation” interview. “I think any dip that we see, headline or otherwise, over the next several days, is probably going to be bought aggressively.”
While investors can achieve similar goals by buying into a passive index, a few names did stand out amid Monday’s declines, Tatro said.
“The only area that we did some buying in [on Monday] morning ironically was one of the only areas that wasn’t in the red — and it was the banks,” he said. “We had huge news on Friday that’s being overshadowed by this new potential strain and stimulus talks and so forth, and that’s the Fed’s allowing the banks to buy back stock.”
After the Fed’s rule change, JPMorgan announced plans to buy back $30 billion of its own shares, about 8% of its nearly $377 billion market cap. The stock closed nearly 4% higher on Monday.
That move “will juice EPS by around 11%,” Tatro said, referring to JPMorgan’s earnings per share.
“In a better tape, we would have high single digits, maybe even [a] low double-digit move for a bank stock today,” he said. “So, I like owning the banks here. Even though they were not red today and it may be a little bit of a chase, I think there’s further upside in the banks, and that’s where I would be looking to allocate capital right here.”
Tengler agreed with the call, adding that she has also been “warming up” to the group in recent weeks.
“The yield curve has steepened. We have seen the banks ease lending standards and then this news that they can buy back shares is all very bullish for the segment,” she said. “We added a new name recently in the regional space. We do own JPMorgan, and Goldman Sachs is in our ’12 best ideas’ portfolio. They benefit as well, and the stock’s up in the high single digits today. So, I like the call. I think it’s one way to play the recovery, but I also think the consumer is an important focus as we move into 2021.”
Walmart ended trading a fraction of a percent higher on Monday. Starbucks closed down less than half of 1%. Roku climbed nearly 4%.
Disclosure: Laffer Tengler Investments owns shares of Walmart, Starbucks, JPMorgan and Goldman Sachs. Joule Financial is long JPMorgan.
