In this market environment, stocks that have “growth at a reasonable price” are attractive, said BMO strategists led by Brian Belski.
They compiled a list of such stocks, including semiconductor company Broadcom (AVGO), pharmaceutical giant Pfizer (PFE) and insurer Cigna (CI).
So what is the current market environment?
“The differentiation of next-12-month earnings growth among S&P 500 companies has been sharply rising, recently climbing to its highest level since the onset of the pandemic,” BMO strategists wrote in a commentary.
Meanwhile, “valuation dispersion has exhibited a similar trend, and currently stands well above its post-financial crisis average,” they said.
“This indicates to us that companies are operating at considerably different fundamental rates. Furthermore, intra-stock price performance correlations remain significantly below historical norms, and earnings-per-share continues to be the major driver of S&P 500 returns.”
That puts a premium on active stock selection, the strategists said. “Our work shows that utilizing a growth at a reasonable price strategy could be beneficial for investors in this type of environment,” they said.
The BMO strategists screened for stocks that are rated outperform by BMO analysts, ones that have a forward price-earnings ratio less than the median S&P 500 value, ones that have forward earnings-per-share growth greater than the median S&P 500 value and ones that have a forward price-to-earnings growth ratio less than the median S&P 500 value.
Other stocks on the list include Fortune Brands Home & Security (FBHS), a security products company; apparel retailer Ross Stores (ROST); Parker-Hannifin (PH), a motion and control technology company; railway CSX Corp. (CSX); and International Paper (IP).
