Savvy investors know that a big rotation has been happening across Wall Street over the past six months. Momentum stocks that make little or no profit are in the penalty box, along with large-cap technology recently, as inflation and the threat of higher interest rates have taken their toll. So where are the stocks investors should look to now that also have alpha potential? One top Wall Street strategist may have the answer.
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Steven DeSanctis, the outstanding Equity Strategist at Jefferies, focuses on small-cap and mid-cap stocks, better known as the SMID sector. In a recent research report, he makes the case that there are currently a number of companies with value characteristics but momentum potential:

Since the market low, valuations have worked well, but we still like these factors. Cheap stocks are still cheap, if Value beats Growth, cheaper drives performance. We have also seen a rebound in Price Momentum and given how bad this factor has been, we think a long road ahead of it working. The top Momentum names have a cyclical bent. These two factors are very powerful over time, thus we screened for Buy-rated names that rank well on both factors, and found 16 ideas.

We looked through the 16 stocks that have market caps above $1 billion, but below $35 billion, and found five that are cheap on an absolute basis but appear to have the potential for solid price movement. Though all are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Advance Auto Parts

This top stock has solid upside potential and is in a very strong sector. Advance Auto Parts Inc. (NYSE: AAP) provides automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy-duty trucks.

The company operates stores under the Advance Auto Parts, Autopart International and Carquest brands, as well as branches under the Worldpac name. As of January 2, 2021, it operated 4,806 stores and 170 branches in the United States, Puerto Rico, the U.S. Virgin Islands and Canada, and it served 1,277 independently owned Carquest branded stores in Mexico, Grand Cayman, the Bahamas, Turks and Caicos and the British Virgin Islands.

While auto parts retailer stocks have done relatively well over the past year, many across Wall Street, including Jefferies, feel that there’s still more room for the rally to continue. In addition, Advance Auto and other retail auto parts companies have the ability to pass on higher costs to consumers, given the nondiscretionary nature of auto parts. That’s a good place to be when inflation is rising.

Shareholders receive a 2.05% dividend. Jefferies has a $235 price target on the shares, while the Wall Street consensus target is $215.56. Friday’s final Advance Auto Parts stock trade was reported at $194.94 a share.

This stock resides in another sector that has been red-hot but has solid upside potential from current levels. Discover Financial Services (NYSE: DFS) operates as a digital banking and payment services company in the United States. It operates in two segments.
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The Direct Banking segment offers Discover-branded credit cards to individuals. Other consumer products and services include private student loans, personal loans, home equity loans and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, IRA certificates of deposit and sweep accounts.

The Payment Services segment operates the PULSE network, an automated teller machine, debit and electronic funds transfer network. Its Diners Club International is a payments network that issues Diners Club branded charge cards and provides card acceptance services. The Discover Network processes transactions for Discover-branded credit and debit cards, as well as provides payment transaction processing and settlement services.

Investors receive a 1.54% dividend. The Jefferies price target is $115 and could be going higher soon. The consensus target is higher and $117.18, and Friday’s closing share price was $113.97.

KeyCorp

The banking industry continues to remain hot, and this is a solid choice for investors looking at financials. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.

The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.

KeyCorp stock investors receive a 3.25% dividend. The $24 Jefferies target price compares with the $23.10 consensus figure. The shares closed on Friday at $23.12 apiece.

With people getting back out and holding backyard barbeques, as well as going out to bars and restaurants, and a host of other reasons, beer is always in demand. Molson Coors Brewing Co. (NYSE: TAP) is one of the world’s largest brewers (more than a 3% global share) with core brands Coors Light, Miller Lite, Carling, Molson Canadian and Staropramen.
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Molson and Coors merged in February 2005 and added StarBev in 2012, and it serves markets including the United States, Canada, Eastern Europe and the United Kingdom and Ireland, with exposure to other markets through its Molson Coors International division. It acquired the remainder (58%) of the U.S. joint venture (MillerCoors) in mid-October 2016.

The company recently provided a fiscal 2021 financial outlook that implies a significant step up in marketing spending that should help support sales growth. With summer right around the corner, the stock could be poised for a strong move higher.

Jefferies has set a $57 price target, with an upside target of $69. The posted consensus target is $55.18, but Molson Coors Brewing stock closed most recently at $57.15.

VICI Properties

This is a top real estate pick across Wall Street in the net lease group, and it is an ideal stock for investors who are more conservative. VICI Properties Inc. (NYSE: VICI) is a triple net lease real estate investment trust (REIT) that was spun out of Caesars Entertainment post-bankruptcy.

The company has 23 mixed-use gaming, lodging and entertainment properties in its portfolio, and a subsidiary that owns four championship golf courses. VICI also owns roughly 34 acres of undeveloped land in Las Vegas, which it leases to Caesars.

Much of the focus across Wall Street for VICI was on its recent deal to acquire the real estate of the Venetian Resort in Las Vegas, with Apollo as a new tenant. In addition, many analysts are positive on VICI’s growth pipeline with Caesars Entertainment including a put/call on the Centaur properties in Indiana and a right of first refusal on a Strip asset sale for Caesars.

Investors receive a 4.26% distribution. The Jefferies price target for VICI Properties stock is $37. The consensus target is just $33.47, and shares closed at $30.99 on Friday.

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These five stocks are reasonably priced, come with dependable dividends and could gain some momentum as more money rotates away from the sectors and stocks that are falling out of favor on Wall Street. Each is quite suitable for growth investors looking for a dividend kicker.

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