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J.P. Morgan: 2 Stocks to Buy (And 1 to Avoid)

Marko Kolanovic, the well-known quant strategist with JPMorgan, sees a positive feedback loop forming that will drive the markets higher next year. Kolanovic believes that a decline in volatility and favorable monetary policies will combine to make stocks the go-to investment for 2021, fueling further market gains. Officially, JPM is forecasting a 25% gain in the S&P 500 over the next 12 months.With investors gravitating toward stocks, volatility low, and cash cheap, Kolanovic is predicting that institutional investors will also step up. In his recent note, the strategist says that $550 billion in combined hedge fund activity is likely for the stock markets in the mid-term. Taken together with the other factors, Kolanovic writes that “these inflows would overpower equity supply to drive equity markets higher.”Getting to the nitty-gritty details, Kolanovic points out three key segments that investors should watch in the markets: financial stocks, energy stocks, and value stocks. He sees the first two benefitting from falling unemployment as the economy ramps back up, while the third will gain at the expense of growth stocks. Growth stocks and government bonds will lose ground generally during what JPM sees as a bullish year for the stock market.In addition to Kolanovic’s look at the macro situation, analysts from JPMorgan have also been diving into specific stocks. Of particular interest, we’ve pulled the TipRanks data on two stocks that the firm predicts will show powerful double-digit growth in the next year. And just for contrast, we’ve included one that JPMorgan says to avoid. Dollar Tree (DLTR)First up is Dollar Tree, a major name in the discount retail segment. Dollar Tree operates more than 15,000 big-box stores across the US and Canada, offering a wide range of products, with many priced at $1 or less. Store departments include food and snacks, dairy and frozen groceries, housewares, household cleaning supplies, toys – in short, all the items customers can find at higher-end department stores and retailers, but for a discount price.The pandemic period has had less of an impact on Dollar Tree than on other retailers, at least in part due to the company’s business model. Offering a ‘one-stop shop’ for most households, and the lowest possible price during a serious economic downturn, have helped the company maintain sales and store traffic. This was clear from the company’s 2020 quarterly earnings, which tracked their historical pattern rather than the general economic conditions. Yes, Q1 EPS dipped, and was down year-over-year, but Q1 is generally the company’s slowest. Q2 and Q3 earnings both showed sequential gains – and beat the forecasts while also gaining year-over-year. Revenues for 2020 have been stable, between $6.29 billion Q1 and $6.18 billion in Q3.Solid performance and a strong retail niche underlay JPM’s analysis of this stock. Analyst Matthew…