When it comes to his outlook on the market for the next few months, Morgan Stanley's Mike Wilson is pessimistic.
The bank's chief US equity strategist and chief investment officer said in a Monday note that he expects the market to drop another 10% in the near term as investors face uncertainty around the election outcome, more fiscal stimulus, and another wave of COVID-19.
But once the dust settles, Wilson said he expects the bull market to ensue — one which will be led by cyclical and smaller-cap stocks as earnings get a boost from the economic recovery.
As such, Wilson recommended using a near term sell-off as a buying opportunity.
"We think the best opportunities lie in stocks where earnings are growing with the cyclical rebound and growing by enough to offset any valuation headwinds," Wilson said.
He continued: "On any pullbacks, we would look to our earnings upside screen from September — 66% of stocks have outperformed the market with median outperformance of 2.4% — and stocks with earnings upside specifically geared toward a reopening and recovery where the market has been skeptical."
Below are the 61 stocks — broken down by market sector — that the bank's September screen found to have upside potential given 2021 earnings estimates.
61 stocks with strong 2021 upside earnings potential
Consumer Discretionary
BorgWarner Inc. (BWA)
Dana Incorporated (DAN)
Harley-Davidson, Inc. (HOG)
Capri Holdings (CPRI)
Carter's, Inc. (CRI)
Columbia Sportswear Company (COLM)
PVH Corp (PVH)
Ralph Lauren Corporation (RL)
Skechers U.S.A., Inc. (SKX)
Taylor Morrison Home Corporation (TMHC)
Wolverine World Wide, Inc. (WWW)
Darden Restaurants (DRI)
Planet Fitness, Inc. (PLNT)
Yum China Holdings, Inc. (YUMC)
American Eagle Outfitters, Inc. (AEO)
Five Below, Inc. (FIVE)
Foot Locker, Inc. (FL)
L Brands, Inc. (LB)
National Vision Holdings, Inc. (EYE)
Ross Stores, Inc. (ROST)
Ulta Beauty (ULTA)
Consumer Staples
US Foods Holding Corp. (USFD)
Sanderson Farms, Inc. (SAFM)
Energy
Baker Hughes Company (BKR)
Phillips 66 (PSX)
Financials
Comerica Incorporated (CMA)
Huntington Bancshares Incorporated (HBAN)
JPMorgan Chase & Co. (JPM)
Regions Financial Corporation (RF)
South State Corporation (SSB)
Wells Fargo & Company (WFC)
Ally Financial Inc. (ALLY)
Credit Acceptance Corporation (CACC)
Discover Financial Services (DFS)
Evercore Inc. (EVR)
Houlihan Lokey, Inc. (HLI)
Synchrony Financial (SYF)
Axis Capital Holdings Limited (AXS)
Healthcare
Align Technology, Inc. (ALGN)
Boston Scientific Corporation (BSX)
Change Healthcare, Inc. (CHNG)
CONMED Corporation (CNMD)
DENTSPLY SIRONA (XRAY)
Globus Medical Inc. (GMED)
LivaNova Plc (LIVN)
Medtronic Plc (MDT)
NuVasive, Inc. (NUVA)
Elanco ANimal Health, Inc. (ELAN)
Illumina, Inc. (ILMN)
Industrials
EnerSys (ENS)
Sensata Technologies Holding PLC (ST)
Textron Inc. (TXT)
Information Technology
Advanced Micro Devices, Inc. (AMD)
Enphase Energy (ENPH)
Universal Display Corporation (OLED)
ACI Worldwide, Inc. (ACIW)
Euronet Worldwide, Inc. (EEFT)
Xerox Holdings Corporation (XRX)
Materials
Freeport-McMoRan, Inc. (FCX)
Mosaic Company (MOS)
Quaker Chemical Corporation (KWR)
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