Two Top-Performing Value Plays That Could Benefit From a Vaccine Rollout

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Three criteria, two very different trades.

With stocks backing off their recent records and Pfizer and BioNTech's Covid-19 vaccine making headway around the world, investors are likely looking for opportunities in this uncertain market landscape.

On Wednesday, two market watchers went searching for value plays at or near their 52-week highs that could benefit from a full-fledged vaccine rollout.

Steve Chiavarone, portfolio manager, equity strategist and vice president at Federated Hermes, had his eye on dividend payers.

Less than 5% off its 52-week high, the Dow Jones Select Dividend Index has been outperforming since Sept. 2, outpacing the S&P 500, large-cap growth, large-cap value and international names in the iShares MSCI EAFE ETF (EFA), Chiavarone told CNBC's "Trading Nation" on Wednesday.

"The story here is you get a dividend yield that's north of 4% and on a P/E basis, you're trading at 14.5 times next 12 months' earnings, which is a lot cheaper than the market at 22 times, and dividend payers were really hurt by the pandemic," Chiavarone said.

"They're old economy names. They're not tech. They're not growth," he said. "People didn't want to be in these names when they were anticipating dividend cuts, but now that we're in an economic recovery, the vaccine's coming, earnings and cash flows are improving, those dividends are seen as sustainable and that yield differential is more and more attractive and people are starting to price that in. So, we think that's a trade that has quite a bit in terms of legs."

The Dow Jones Select Dividend Index is tracked by the iShares Select Dividend ETF (DVY), which closed up a fraction of 1% on Wednesday at $97.30.

Mark Newton, founder and president of Newton Advisors, flagged a trade on the other side of the money-making cycle, in the stock of casino and racetrack operator Penn National Gaming.

"It's really part of a group that's going to continue to benefit as we hear signs of this vaccine rollout coming out very quickly," Newton said in the same "Trading Nation" interview.

Penn shares closed down more than 5% at $74.67 on Wednesday after hitting a new all-time high.

"Volume was very heavy, almost the heaviest in a month" on the move, Newton said, citing a chart of the stock.

"It's formed what we as technicians call a cup-and-handle pattern that happened over the last few months since September, and so, the fact that it broke out [Tuesday] on very heavy volume, about 7.5 million shares, is very attractive to me," Newton said.

He saw the move continuing in the weeks to come, saying Penn could run as high as $85 or $90 a share. That would imply roughly 14%-20.5% upside for the stock from its Wednesday closing levels.

"You're actually getting a chance to buy dips given that the market's a little bit weak, and so, that presents a very good risk-reward opportunity for me," Newton said.


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