The stock market may be ripping higher, but there are still some names trading at a discount that could do well, according to Sarat Sethi, portfolio manager of Douglas C. Lane & Associates. Stocks have ripped to record highs this year, led by a few major technology names as investors bet artificial intelligence will boost profits. This comes even as, according to Sethi, new data points to more rampant-than-expected inflation, which has put the Federal Reserve in a “wait-and-see” position when it comes to monetary policy. That doesn’t mean there aren’t opportunities for investors looking for stocks at more attractive valuations, especially during pullbacks, Sethi said. On Tuesday, the Dow Jones Industrial Average , S & P 500 and Nasdaq Composite fell more than 1% in the previous session before rebounding Wednesday. “This market’s had a very concentrated run on GLP-1 and AI stocks, so we’ve seen some broadening but not really that much of broadening,” Sethi, who helps manage more than $7 billion for DCLA, said. “Investors are looking to see if the rally is going to be continued by the big megacaps or if it’s time for other sectors to start performing.” Sethi highlighted several attractively valued stocks to buy on a pullback, including Johnson & Johnson , GSK , Freeport-McMoRan , Schlumberger and Google parent Alphabet . From the health-care sector, Sethi highlighted pharmaceutical companies Johnson & Johnson and GSK as “very cheap stocks.” The two names are up roughly 2.1% and 15% this year, respectively. Industrials is another sector investors should add to, according to Sethi. His top picks include major copper producer Freeport-McMoRan and oilfield services company Schlumberger, which are down roughly 9.6% and 3.3% this year, respectively. Sethi thinks increased demand for hybrid and electric vehicles should benefit Freeport, given copper is a key part of electrified technologies , including EVs. When it comes to major technology stocks, Sethi pointed out that Alphabet, one of his firm’s core holdings, is currently trading at a discounted level. The average analyst polled by FactSet has a price target of $164.46, which indicates the company’s shares could climb nearly 24%. Backlash from Google’s faulty Gemini image-generation product launch led to a 4% slump last week. Shares are down another 4% week to date. The portfolio manager also noted it may not be the best time for investors to pick up shares of other strong tech companies and AI plays he likes, such as Nvidia, Microsoft and Meta , given their higher valuations. “I think valuations are gonna be interesting because these companies are still growing … there’s a lot of money that’s been chasing these stocks,” Sethi said about the major tech plays. “I think you want to be diversified and not just in these stocks.”
5 cheap stocks to buy on any pullback, according to investor Sarat Sethi
Mar 6, 2024
