In 2020, investors witnessed a historic bifurcation in markets, when both equities and bond prices soared, thanks to trillions of dollars in financial stimulus to power economies through hard-hitting recessions triggered by the coronavirus crisis.
Last year saw stock markets hit record-highs, driven for the most part by gains in those companies that benefited from the so-called "stay at home economy", such as online marketplace Amazon, video conference service Zoom, or even electric vehicle maker Tesla.
Now the task for last year's winners is to cement those gains, as those more-cyclically linked stocks profit from economic recovery, according to Morgan Stanley's chief US equity strategist Michael Wilson in a note on Monday.
Companies like entertainment group Disney and consumer goods and pharma company Johnson & Johnson have been part of a collection of so-called 'pandemic-winners', boosted by demand for at-home entertainment and healthcare products, respectively.
Other companies, particularly in the financial and energy sectors, which had suffered in the first nine months of the year, finished 2020 on a strong note, as markets rallied when viable COVID-19 vaccines offered hope that economic recovery would not be far away.
This resurrection is set to continue, Wilson said, with "new areas of leadership" across markets in sectors like small caps, consumer discretionaries, materials, financials, cyclical tech, like semiconductors and hardware and industrial stocks, Wilson added.
These stocks took a beating during the early stages of the pandemic, as they are largely viewed as cyclical, meaning that they have a close correlation to the performance of the global economy. Therefore, in a downturn, they tend to underperform their more defensive peers.
Indeed, the MSCI Global Value index, a benchmark for cyclical stocks, rose 15.2% in the final three months of 2020, compared to its growth equivalent's gain of 12.4%.
2021 could perpetuate this rotation into value, but Wilson warns there is a possibility of a wider drawdown across the markets, caused by a pickup in inflation. A rise in consumer prices would, in turn, force up Treasury yields, which Wilson says are "mispriced". A sharp rise in yields could rattle the stock market, as it would raise companies' funding costs and prompt a brisk readjustment of valuations.
There's also the matter of mass vaccination programs that could pave the way back to more normal economic activity, which might act as a drag on some of last year's big tech winners, for example.
However, Morgan Stanley argues that these 8 stocks will continue to perform well despite some of the risks to the broader market.
Ally Financial
- Ticker: ALLY.NYSE
- Market cap: $13.3 bln
- MS Rating: Overweight
- Current Price: $35.45
- MS Price Target: $47.00
- % Upside: 32.6%
- Sector: Financials
Citizens Financial Group
- Ticker: CFG.NYSE
- Market cap: $15.1 bln
- MS Rating: Overweight
- Current Price: $35.47
- MS Price Target: $44.00
- % Upside: 24.0%
- Sector: Financials
Walt Disney
- Ticker: DIS.NYSE
- Market cap: $330.9 bln
- MS Rating: Overweight
- Current Price: $182.78
- MS Price Target: $200.00
- % Upside: 9.4%
- Sector: Communication Services
Humana
- Ticker: HUM.NYSE
- Market cap: $53.8 bln
- MS Rating: Overweight
- Current Price: $406.71
- MS Price Target: $500.00
- % Upside: 22.9%
- Sector: Health care
Johnson & Johnson
- Ticker: JNJ.NYSE
- Market cap: $410.4 bln
- MS Rating: Overweight
- Current Price: $155.88
- MS Price Target: $178.00
- % Upside: 14.2%
- Sector: Health care
Linde PLC
- Ticker: LIN.NYSE
- Market cap: $137.2 bln
- MS Rating: Overweight
- Current Price: $261.75
- MS Price Target: $281.00
- % Upside: 7.4%
- Sector: Materials
PVH
- Ticker: PVH.NYSE
- Market cap: $6.8 bln
- MS Rating: Overweight
- Current Price: $95.52
- MS Price Target: $104.00
- % Upside: 8.9%
- Sector: Consumer Discretionary
T-Mobile US
- Ticker: TMUS.NAS
- Market cap: $166.0 bln
- MS Rating: Overweight
- Current Price: $133.73
- MS Price Target: $143.00
- % Upside: 6.9%
- Sector: Communication Services