New Trade for January 7th, 2021

Stocks are optimistic this morning despite the turmoil at the Capitol yesterday.  Investors seem eager to leave the past behind and move forward, seeking out rewarding opportunities for the new year.  

For the past ten years, hot growth stocks have been the better bet, but now there are a multitude of experts proclaiming that value stocks will be en vogue in 2021.  Cyclical stocks considered too risky just a few months ago are suddenly flashing on investors’ radar.  

Bank of America, for instance, sees the U.S. stock market in the early stages of a value cycle that will pick up steam in 2021.  “The relative discount for value stocks remains nearly two standard deviations below average, “ BofA analysts say.  

Today we’re highlighting one value stock that seems timely in a post-pandemic world, which, for practical purposes, should materialize in the second half of 2021.  

LyondellBasell (LYB) had a brutal 2020, never sniffing a positive return from day one.  It’s primarily in the business of selling plastics and petrochemicals, but it also has a large refinery business that makes gasoline, diesel fuel and jet fuel.  

In a normal world, this would have been considered a diversified model.  But in 2020, investors spent most of this year scared to death of anything resembling energy.  

Chemicals companies are cyclical in nature, as are refineries.  They tend to do well when the economy is humming.  So, it’s not surprising that LyondellBasell got beaten up in March.  But what is surprising is the sheer magnitude of the fall.  Before the dust settled, the stock had fallen by about two thirds from its 52-week highs.  

The shares bottomed out in late March and by early December had clawed back most of their losses for the year.  

But here’s the thing.  LYB shares were cheap before the March selloff, and they remain cheap today.  The stock trades 1.1 times sales and 13 times expected 2021 earnings.  To put that into perspective, the S&P trades at an almost shocking 2.7 times sales and 22 times expected 2021 earnings.  

As Wall Street settles into the new year select value stocks appear to be gaining steam.  We’ll see if this is a blip or if it represents a sustained shift in sentiment.  But regardless, LYB is a cheap stock showing strong momentum, and that puts it on strong footing to one of 2021’s top value stocks.   

Where to invest $1,000 right now...

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