Twenty top stock pair trades from Raymond James
Tim Robberts
Raymond James updated its Pair Trade List of divergent stock recommendations after some underperformance in March.
The list of pairs was down -2.6% in March, compared to a +3.5% gain in the S&P 500 (SP500) (SPY) (IVV) (VOO) and a +2.4% rise in the Russell 3000 (IWV).
The "banking crisis was broadly not kind to the list," analyst Tavis McCourt wrote in a note.
The list is up 28.6% since its inception in December 2020.
Pairs trades are a marketneutral strategy, buying a stock assessed to be undervalued and selling an overvalued stock short.
The Pairs Trade List:

Marsh & McLennan (NYSE:MMC), rating Outperform and Aon (NYSE:AON), rating Underperform - "Two large insurance brokers with similar valuations, but MMC sports a stronger organic growth rate and less international exposure, which should result in a premium valuation over time."
Wintrust Financial (WTFC), Strong Buy and Old National (ONB), Market Perform - "We are pairing WTFC, a Chicago bank with superior loan growth and discounted P/TBV valuation with ONB has a slower organic growth outlook and premium P/TBV valuation."
Huntington Bancshares (HBAN), Strong Buy and U.S. Bancorp (USB), Underperform - "HBAN has a discounted P/E and completed an acquisition in mid-2021, with cost synergies in front of it, while USB trades at a higher P/E and faces regulatory headwinds to its announced acquisition - this trade benefits from typical trading of banks around M&A."
Dave & Buster's (PLAY), Strong Buy and Shake Shack (SHAK), Market Perform - "PLAY is materially less expensive on current profitability with substantial growth prospects, and a revenue stream less exposed to a slowing economy, while SHAK is growing as well, but with more risk to fundamentals if the economy weakens."
Delta Air Lines (DAL), Strong Buy and American Airlines (AAL), Market Perform - "Delta sports a better balance sheet and discounted valuation on an EV/EBITDA basis relative to AAL, which should start to matter as growth rates normalize, and likely valuations normalize in the airline industry over the next 1-2 years."
Broadridge Financial (BR), Outperform and FactSet (FDS), Underperform - "Both are high quality fintech names with substantial recurring revenue and pricing power, but with similar organic growth outlooks, FDS is valued at a meaningful premium, and our capital markets analyst believes this valuation gap should narrow over time."
Federal Realty Investment Trust (FRT), Strong Buy and Kimco (KIM), Market Perform - "Two REITS with similar valuation multiples (P/FFO), but FRT should have substantially more growth over the next several years."
CVS (CVS), Outperform and Walgreens (WBA), Market Perform - "CVS should have a superior mix of business relative to WBA for the next several years and easier 2023 guidance to achieve and after recent sell off trades at a P/E premium that should be meaningfully higher based on analyst John Ransomâs opinion."
WESCO International (WCC), Strong Buy and Fastenal (FAST), Underperform - "WCC is an industrial distributor that is deleveraging and benefiting from inflation, while FAST is a much more expensive industrial distributor and growing more slowly, which should cause the valuation gap between the two to close over time."
CareTrust REIT (CTRE), Strong Buy and Sabra Health Care REIT, Market Perform - "Both are REITs in Skilled Nursing Facilities, CTRE has the potential for portfolio optimization and better growth outlook than SBRA."
Williams Companies (WMB), Strong Buy and Kinder Morgan (KMI), Market Perform - "Very similar EV/EBITDA valuation for these midstream players, but our midstream energy team believes WMB deserves a premium due to superior long term earnings growth prospects."
CACI International (CACI), Outperform and Booz Allen (BAH), Market Perform - "Both are relatively non-cyclical beneficiaries of defense related IT spending, BAH has traditionally and continues to trade at a meaningfully higher P/E multiple, but CACI is gaining share and should see its valuation improve as its growth rates moves closer to BAHâs over time."
Diamondback Energy (FANG), Strong Buy and Coterra Energy (CTRA) - "FANGâs higher oil exposure relative to natural gas than CTRA should benefit FANG results on a relative basis, while CTRAâs substantial valuation premium to FANG should shrink if the year progresses as analyst John Freeman predicts."
Jabil (JBL), Strong Buy and Flex (FLEX), Market Perform - "JBL has a discounted valuation with similar growth prospects than FLEX and improving revenue quality (sustainability) at JBL. The valuation gap should close."
Pure Storage (PSTG), Strong Buy and Nutanix (NTNX), Market Perform - "Similar revenue multiple for both share gainers in the storage industry, but PSTG has greater bottom line profitability and superior growth for at least the next year or so, warranting a premium valuation."
Landstar System (LSTR), Outperform and C.H. Robinson (CHRW), Underperform - "Both trucking companies, but based on trucking analyst, Felix Boeschenâs opinion, LSTR should have a superior business mix for the likely transport outlook over the next year, while CHRWâs P/E premium to LSTR should shrink from current levels."
Dollar General (DG), Strong Buy and Dollar Tree (DLTR), Market Perform - "Very similar P/Es but DG is a best in class operator, while DLTR remains in a multi-year turnaround; we expect stronger earnings growth and less operational risk at DG, leading to a valuation premium over time."
CubeSmart (CUBE), Strong Buy and Public Storage (PSA), Market Perform - "Two very similar self-storage REITs, CUBE trades at a lower multiple and better chance at external growth accretion than PSA given its size differential."
American Homes 4 Rent (AMH), Outperform and Mid-America Apartment Communities (MAA), Market Perform - "Two high quality companies in the residential REIT market. Analyst Buck Horne believes SFR REITs have a better outlook than multi-family apartment REITs, especially in the Sun Belt due to a large supply increase in apartments in the next two years. We believe this should lead to outperformance of AMH vs. MAA."
Fidelity National Information Services (FIS), Strong Buy and Jack Henry (JKHY), Market Perform - "FIS is trading at a meaningful discount to its historical multiple and JKHY, while JKHYâs less volatile business should allow it to maintain a valuation premium to FIS, this should close as FIS fundamentals recover."

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