- Industrials are the next most attractive buys now after big tech and similar stocks, Tom Lee says.
- The Fundstrat founder cited technical analysis, Q1 earnings, and manufacturing activity.
- He sees the broader S&P 500 gaining 20% this year.
Investors who have been sitting in cash or cash-like bonds have not done too shabbily this year, thanks to higher interest rates.
But for anyone who is ready to take some more risk by diving into stocks — or for anyone simply feeling left out of the rally — Fundstrat Global Advisors Founder Tom Lee has one big idea: industrials stocks.
The characteristically bullish strategist, who worked at JPMorgan before starting his own firm, sees the S&P 500 finishing 2023 at 4,750. That would represent a 20% gain for the full year. Since the benchmark index is up 11.3% year-to-date, it still has remaining upside, per Lee's forecast.
Technology stocks have led the S&P 500 higher so far, followed by communication services and consumer discretionary names. These three also happen to top Lee's ranking of the most attractive sectors, based on technical analysis and his assessment of their fundamentals.
The industrials sector ranks fourth, and Lee has named several specific industrials stocks that are ripe for the picking.
But why buy them now? In a sign of "gaining strength," the sector has recently jumped above both its 20- and 200-day moving averages, Lee said. Industrials also had an impressive first-quarter earnings season, with about 61% of companies reporting positive earnings-per-share growth compared to last year — a share bested only by the energy sector.
Lee also found that the median returns of industrial stocks were historically strong after manufacturing activity, as measured by the Purchasing Manager's Index, hit its trough. Lee believes the PMI bottomed in March, paving the way for the sector to shine again.
The industrials stocks below are listed in ascending order of their attractiveness per Lee's ranking.
