- Stocks suffered a brutal first half of 2022 as investors believed a recession became more likely.
- Bank of America‘s Jill Carey Hall says investors’ downturn preferences are fairly stable.
- She explains which “Buy”-rated stocks they should trust for stability and strong returns.
There is virtually no disagreement that a
in the United States has become a greater danger in recent months. The question is what to do about it.
Go to checkout and expect something better? Going for a short time? Short actions? Playing defensively and waiting for the worst to be over? Strategies abound.
Bank of America Equity and Quantitative Strategist Jill Carey Hall, who focuses on small businesses, says she has a playbook, and it’s no mystery what works in downturns and recessions.
“Quality, cash yield and low risk have been the most consistent styles,” she said in a recent note. “As for individual factors, factors based on free cash flow, including FCF/EV and FCF ROA, were among the best long and short long factors, with stock buyback also being a top long factor. .”
Quality generally translates into healthy balance sheets and stable earnings, while cash returns mean higher free cash flow yields and larger dividends and stock buybacks. Bank of America measures low risk due to lower earnings variability, fewer stocks
and the high degree of analyst confidence in their earnings estimates.
From there, Carey Hall takes the initiative to link these success factors to find the top-ranking stocks that her company rates as “Buy” today.
“Our selection is based on 1) top quintile by quality (average ranking of the quality factors we track), 2) bottom quintile by risk (average ranking of the risk factors we track), 3) return of money to shareholders (dividend payer or stock buyback in the last 12 months),” she said, as well as stocks that are liquid and have substantial trading volumes.
Year-to-date performance data for equities is current as of July 1.