Amid an uncertain landscape, high quality may offer stable ground
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AMID AN UNCERTAIN LANDSCAPE, HIGH QUALITY MAY OFFER STABLE GROUND
Following a series of S&P 500 index .SPX record highs into mid-summer, investor enthusiasm quickly waned when major economic data stoked long-dormant recession fears and worries that the Fed may have fallen behind the curve with its policy stance.
While the initial panic seems to have eased for now, with U.S. stocks clawing back some of their recent losses, Brian Belski, chief investment strategist at BMO Capital Markets, fully expects headline risk to persist given the seemingly sentiment-driven nature of U.S. stock price movement this year.
Given this, Belski, in a strategy note out on Tuesday, is revisiting one of his long-standing investment themes – High Quality.
"Our work suggests that these stocks are not only well suited for volatile market periods but can also be an attractive long-term investment strategy. As such, we believe it would behoove investors to focus on this sort of strategy as markets continue to digest what has quickly become an increasingly uncertain investment landscape," he writes.
To this end, BMO screens for stocks that contain "high quality" S&P stock and bond ratings, low levels of EPS growth volatility, and high levels of cash and ROE.
"Our analysis shows that stocks fitting these criteria have historically produced higher price returns than the broader market on average, along with a favorable risk profile," writes Belski.
Belski does admit that this strategy has been unable to keep up with S&P 500 returns during the current bull market, but he says returns "have been impressive nonetheless", and especially considering that much of market gains have been driven by a handful of mega-cap growth stocks that are typically not included within this strategy.
Among stocks listed in Belski's high quality screen, that also sport a BMO outperform rating are: Amgen AMGN.O, Air Products APD.N, Brown & Brown BRO.N, Alphabet GOOGL.O, Kroger KR.N, Nike NKE.N, and Visa V.N.
Meanwhile Belski continues to be relatively bullish on the outlook for U.S. stocks (i.e., 2024 base case S&P 500 price target of 5,600, bull case 6,000).
(Terence Gabriel)
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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
AFTER CPI, MARKET FOCUS TURNS TO JACKSON HOLE - CLICK HERE
U.S. INDEXES STRUGGLE TO GAIN TRACTION IN EARLY TRADE - CLICK HERE
U.S. STOCK FUTURES LITTLE CHANGED AFTER MOSTLY IN-LINE CPI - CLICK HERE
HOW YOU COULD JUSTIFY AUGUST'S STOCKS SELL OFF - CLICK HERE
BETTER-THAN EXPECTED UK INFLATION NOT ENOUGH FOR SEPTEMBER CUT - CLICK HERE
AND HAPPY AS THE SCREENS WERE GREEN - CLICK HERE
COOLER-THAN-EXPECTED BRITISH INFLATION DATA BOOSTS THE MOOD - CLICK HERE
MORNING BID: WELCOME TO THE CUTTING CLUB KIWIS - CLICK HERE
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