Best and worst stocks to buy right now
This year is shaping up to be a very different year from 2017, with volatility returning to the markets after a prolonged period of calmness. With this change in mind, Credit Suisse analysts completed a checkup of the markets and gave an update on which sectors of the market merit the most – and least – optimism.
Starting with the positive, according to Credit Suisse, the technology, financial and discretionary sectors are where the opportunities are and have Overweight ratings.
Technology
Credit Suisse notes that the tech sector has been one of the top performers throughout the nine-year recovery from the 2008-2009 recession, driven by superior fundamentals. Since mid-2016, tech has delivered more than twice the market's return, with all subgroups outperforming. Credit Suisse analysts see the group’s revenue growth extending. They are optimistic that the group will continue to return capital to shareholders, but noted that within the sector, they are less inspired by hardware-related tech stocks.
Financials
Credit Suisse is also bullish on financials, noting that since mid-2016, the only sector that has delivered stronger results is technology. Positives for the financial sector include an improving economic backdrop, rising interest rates, a decreased regulatory burden and strong credit performance, which have driven the recent performance and will continue in 2018. Credit Suisse expects all sub-groups of the financial sector will deliver earnings growth above the market.
Discretionary
The discretionary sector includes companies that produce or sell goods and services that are considered non-essential by consumers. While these goods are not necessary, consumers are interested in buying them when they have the extra income to purchase. When the economy is doing well, demand for discretionary goods increases.
It makes sense that Credit Suisse is positive on the sector, given U.S. economic strength. The bank said that since mid-2016, this sector’s performance has been deceiving, with internet retail up by 112% and the remainder of the group lagging –clear evidence of the Amazon effect. Credit Suisse says growth for internet retail remains strong, but valuations are extended compared with benchmarks. When valuations are extended, analysts start to consider how much further a stock, or section of the market, has to rally.
Within old consumer stocks, brick-and-mortar retailers and media look positive because of improving consumption and tax benefits, according to Credit Suisse. Within this sector, the weakest expectations are for autos.
Credit Suisse is less optimistic about telecom, REITs and utilities – and are Underweight on the three sectors.
Telecom
Rising interest rates have pressured telecoms since 2016, while increased competition weighed on the sector’s revenues and earnings last year. The bank’s expectations for the sector in 2018 have improved, with tax-reform-related benefits a positive. While they are underweight on the sector, Credit Suisse says valuation makes it attractive.
REITs
Real estate investment trusts (REITS) have performed negatively since mid-2016 because of rising interest rates. There is plenty of pressure on the sector from weaker retail demand and rising residential capacity.
Utilities
This is another sector that is negatively affected by rising interest rates, and it has delivered negative returns since mid-2016. Credit Suisse sees negative revenue and earnings trends for the sector. Potential positives include attractive valuations and solid dividends.