Bet on these stocks to outperform as bond yields surge, top investor says

A surging bond market triggered a stock sell-off on Wall Street this week.

The 10-year Treasury note briefly crossed above 1.6% on Thursday, its highest level in more than a year. It traded at just under 1.5% on Friday.

"The yield curve has steepened so you want to own banks," Nancy Tengler, chief investment officer at Laffer Tengler Investments, told CNBC's "Trading Nation" on Thursday. "Our pick would be JPMorgan. They just put in place in the fourth quarter a negative $2 billion loan loss provision. That that hasn't happened in five years and they get half their revenue from interest income and the other half from noninterest so it's a great hedge."

A steepening yield curve benefits the banks as they can borrow at a cheaper price while lending at higher rates of interest. JPMorgan, Tengler's pick, has risen nearly 17% so far this year.

"We also like names like BHP. First of all, you get a high yield of 5.1% plus dividend growth, and you get the super-cycle commodity play that will benefit as the economy grows and even as a hedge against inflation," Tengler said.

Oil stock BHP is up more than 17% in 2021, driven by the rally in crude oil prices. It hit a 52-week high earlier this week.

"Lastly we like a lot of the GARP-y [growth-at-a-reasonable-price] names, some of the big-cap tech stocks that are getting sold off, I think you can step in some of those names and add the whole thing," said Tengler.

Matt Maley, chief market strategist at Miller Tabak, in August called for the rise in rates. However, he said the move may now be overdone.

"One of the things I'm really worried about here … is that on a very near-term basis that the bottom of the bond market is really overshooting," Maley said during the same interview. "Look at the TLT, that's the Treasury ETF which measures the price, that's very, very oversold. It's the most oversold spend since 2018 just before it bounced back."

Bond prices move inversely to yields. Maley said an oversold rally in the TLT would push yields back down.

The bank stocks could also come back down, he warned.

"We don't want to panic about the move in rates, and if anything I think they're going to actually come back a little bit on a near-term basis. So even though I like some of these places like the bank stocks, you don't want to be chasing them aggressively here. Let them come back to you. We've already got some nice gains in them. There's no reason to chase them up at these levels," said Maley.

The KBE bank ETF is up more than 20% this year.

Disclosure: Laffer Tengler Investments holds BHP and JPM.

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