Best super-cyclicals to buy in 2021

Credit Sussie listed the most affordable super-cyclicals that investors should buy as the U.S. economy surges. Yahoo Finance’s Brian Sozzi shares the details.

Video Transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live. Brian Sozzi this morning coming in with-- Sozzi, this is some good, old-fashioned business media content out of Credit Suisse today. The best cyclical stocks for you to buy right now, I just see a lot of energy on here, which is interesting, considering XLE has been-- it was up, like, 30% in the first quarter.

BRIAN SOZZI: Yeah, great listicle potential here, Myles. Lots of tickers, lots of things to love if you're in the business media business, as you are. So this is compliments of Jonathan Golub, strategist at Credit Suisse. We talk to him all the time. He's come out here noting that cyclicals have outperformed very significantly since the November 9, 2020 vaccine announcement out of Pfizer.

And he has a chart here showing cyclicals up about 22% since that Pfizer announcement on November 9. Financials up about 21.5%, non-cyclicals up about 15 and 1/2%, and tech, believe it or not, only up 12% here. And he's trying to make the case for saying, you now have to go-- it's no longer OK per se to go out there and buy a cyclical stock on the thought that the economy is going to bounce back strongly later this year or as it's bouncing back now. You have to look for super cyclical stocks.

So what is a super cyclical stock? Essentially, Golub says this is a stock with a reasonable PE and a PE that is trading below the sector average. And I'll add this, too, on top of this, probably a PE that is trading below the S&P 500's forward multiple at about 22 and 1/2 times-- I know, complicated here, but this is how stock analysts think about this stuff. And he has identified a bunch of stocks, well-known stocks, that fall in this category.

I'm going to highlight FedEx. I'm surprised. I was on the Yahoo Finance Plus platform this morning to see FedEx shares trading at about 15 times earnings. The company has put up pretty-- two pretty good quarters. I can't think of a more super cyclical stock that is going to play in this recovery than a FedEx. You would think earnings growth is going to accelerate meaningfully over the next couple of quarters.

Another name, L Brands, Victoria's Secret, Bath and Body Works, that company has been coming out the past month and half with very strong sales updates, only trading at about 15 times earnings. And then Ralph Lauren, Polo Ralph Lauren, really, a lot of folks have outgrown their clothes over the past year of the pandemic. They no longer fit in their size 31 pants, which I will put myself in that category. I know I look slim on camera. That's not necessarily the case when it comes to pants. Only trading at 11 times forward earnings. So there are good bargains to find in this market. You just have to look for specific stocks and in this case, guys, super cyclicals.

JULIE HYMAN: And what's interesting to me is that there's been this reframing in this. It's not really sort of value versus growth at this point, right? For a long time, we were talking about that dichotomy-- value versus growth, value versus growth. The problem is, is that value was the cyclicals, and they're not all value anymore because of the rally that we have seen. So I guess it makes sense then to slice and dice it in a different way, as Golub has done in this note.

BRIAN SOZZI: Yeah, it's amazing how a lot of these stocks, they've seen their PE multiples expand, Julie. But it looks like the new normal is a PE multiple over 20 times. That wasn't the normal a couple of years ago. I was trained in thinking at a 15 times forward multiple is a good bargain. But in a market with low rates and with everything seemingly going up, over 22 times seems to be the new normal and the real bargain here.

MYLES UDLAND: You know, you boomers and your 15 times earnings affordability, none of this. Come on, get on board. Get on board. It's the [INAUDIBLE]