- China's economy is beginning to heal following the coronavirus outbreak, and Bank of America says it's setting a blueprint for what industries and companies in the US can recover first from the domestic outbreak.
- Strategist Savita Subramanian maes 12 stocks that operate in industries that could bounce back soon and look inexpensive.
- She also named eight others that could be overpriced.
- Visit Business Insider's homepage for more stories.
Even as the US economy gets historically bad, investors are getting more optimistic about stocks.
They're betting on the eventual recovery, and Savita Subramanian — Bank of America's head of US equity and quantitative strategy — says that China is a major reason they're so hopeful. Its economy is starting to bounce back after the country got control of the coronavirus outbreak.
That means China could be a template for the rebound in the US — whenever it comes — and Subramanian is using that to help traders invest.
"China demand (based on fundamental industry-specific measures like bank loans, coal consumption, etc.) has largely recovered to 2019 levels," she wrote in a recent note to clients. "Air freight, food and e-commerce demand are notably above trend, whereas movies, airlines, hotel and leisure are still below trend."
While the market has staged a big and broad rally, Subramanian says that if the pattern from China's recovery is applied to the US, it helps make it clear which industries should heal first and which will take longer. Applying that to stocks, it shows some companies are inexpensive and have more potential for big rallies, while others are very optimistically priced.
The implication is that airlines, banks, independent power, real estate, steel, and integrated oil and gas companies could outperform the market, while companies in movies and entertainment, internet and catalog retail, metals, food and consumer staples, and drugmakers all look more expensive and risky.
The following 20 companies all operate in the industries Subramanian says are most promising — but that doesn't mean they're all going to outperform.
Based on individual factors like their recent performance and balance sheets, she divided those companies into 12 stocks to buy and eight companies to sell.
STOCK TO BUY 1: Southwest Airlines
Ticker: LUV
Sector: Industrials
Market Cap: $14.8 billion
2020 Performance: -52.9%
Source: Bank of America
STOCK TO BUY 2: Citigroup
Ticker: C
Sector: Financials
Market Cap: $96.8 billion
2020 Performance: -43.9%
Source: Bank of America
STOCK TO BUY 3: Fifth Third Bancorp
Ticker: FITB
Sector: Financials
Market Cap: $12.1 billion
2020 Performance: -43.3%
Source: Bank of America
STOCK TO BUY 4: Truist
Ticker: TFC
Sector: Financials
Market Cap: $47.7 billion
2020 Performance: -37.5%
Source: Bank of America
STOCK TO BUY 5: NRG Energy
Ticker: NRG
Sector: Energy
Market Cap: $8.3 billion
2020 Performance: -18.1%
Source: Bank of America
STOCK TO BUY 6: Vistra Energy
Ticker: VST
Sector: Energy
Market Cap: $9 billion
2020 Performance: -21.3%
Source: Bank of America
STOCK TO BUY 7: CBRE Group
Ticker: CBRE
Sector: Real estate
Market Cap: $13.5 billion
2020 Performance: -33%
Source: Bank of America
STOCK TO BUY 8: Exxon Mobil
Ticker: XOM
Sector: Energy
Market Cap: $188.1 billion
2020 Performance: -36.3%
Source: Bank of America
STOCK TO BUY 9: Apache
Ticker: APA
Sector: Energy
Market Cap: $4.6 billion
2020 Performance: -53.4%
Source: Bank of America
STOCK TO BUY 10: Pioneer Natural Resources
Ticker: PXD
Sector: Energy
Market Cap: $13.6 billion
2020 Performance: -42.3%
Source: Bank of America
STOCK TO BUY 11: Hess
Ticker: HES
Sector: Energy
Market Cap: $14.1 billion
2020 Performance: -29.9%
Source: Bank of America
STOCK TO BUY 12: Chevron
Ticker: CVX
Sector: Energy
Market Cap: $175.8 billion
2020 Performance: -22.7%
Source: Bank of America
STOCK TO SELL 1: American Airlines
Ticker: AAL
Sector: Industrials
Market Cap: $4.2 billion
2020 Performance: -66.3%
Source: Bank of America
STOCK TO SELL 2: Comerica
Ticker: CMA
Sector: Financials
Market Cap: $4.6 billion
2020 Performance: -54.7%
Source: Bank of America
STOCK TO SELL 3: US Bancorp
Ticker: USB
Sector: Financials
Market Cap: $50.8 billion
2020 Performance: -42.2%
Source: Bank of America
STOCK TO SELL 4: Newmark Group
Ticker: NMRK
Sector: Real estate
Market Cap: $578.3 million
2020 Performance: -73.4%
Source: Bank of America
STOCK TO SELL 5: Southwestern Energy
Ticker: SWN
Sector: Energy
Market Cap: $1.5 billion
2020 Performance: +24%
Source: Bank of America
STOCK TO SELL 6: Range Resources
Ticker: RRC
Sector: Energy
Market Cap: $1.5 billion
2020 Performance: +23.5%
Source: Bank of America
STOCK TO SELL 7: Cabot Oil & Gas
Ticker: COG
Sector: Energy
Market Cap: $8 billion
2020 Performance: +16.6%
Source: Bank of America
STOCK TO SELL 8: Marathon Oil
Ticker: MRO
Sector: Energy
Market Cap: $4.4 billion
2020 Performance: -58.9%
Source: Bank of America