It may be space to explore contrarian plays.
Wells Fargo Securities’ Christopher Harvey is telling investors the best opportunities are in the severest hit parts of the stock market. He believes the potential rewards outweigh the risks.
“Start adding cyclicality. Start summing value. Start adding risk,” the firm’s head of equity strategy told CNBC’s “Trading Nation” on Wednesday. “This is where the outstanding mispricings are.”
Harvey, who once referred to himself during an interview as “not a real positive guy,” believes the worst is behind the market-place as the country battles the coronavirus pandemic.
“We’re starting to price in a less bad scenario,” he said. “Things are getting slightly safer at the margin.”
In addition to fewer new virus cases, better spending patterns and the gradual reopening of the economy, Harvey highlights unprecedented economic and monetary policy as bullish catalysts for stocks.
“A few weeks ago, for the first time in a long time, we went overweight on value,” Harvey suggested. “Now, what we are telling them [investors] is we want them to start putting risk into the portfolio.”
Harvey’s tactics: Target stocks positioned to stage a comeback within the next 6 to 18 months as the economy recovers from the pandemic and shutdowns.
“We do after to buy some of these beaten up credit card names. We want to add some of these bombed out media names,” reported Harvey. “Some of the railroads look really interesting … At some point, we are going to start moving possessions around the country once again.”
He urges investors to focus less on the market’s direction and more on how to position the portfolio.
“As we get to 3,000 [on the S&P 500], which is the high-end of our short-term scope, we want people to rotate because we think that rotation for these beaten-up stocks really offer some positive opportunities,” Harvey said.
On Wednesday, the index closed at 2,971, which is 12% below its all-time high.
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