BANK OF AMERICA: Buy these 34 high-returning but lesser-known stocks because economic trends show they're the best bet for outperformance
- Bank of America says the economy might already be entering the last stage of the post-COVID cycle.
- Strategist Jill Carey Hall says "quality" small- and mid-cap stocks thrive in late-cycle conditions.
- Since 1990, they've outperformed 100% of the time during the last phase of an expansion, she says.
- See more stories on Insider's business page.
There's something of a consensus forming on Wall Street that says investors should take a good, long look at "quality" stocks.
The market seems to have shaken off its fear that Chinese real estate lender Evergrande was going to be the start of a global debt crisis. But even so, there's been a rising sense of nervousness in the market in recent weeks as experts note how long it's been since stocks sold off in a major way - even though time alone doesn't make those sales happen.
Investors' worries about a downturn have prompted them to buy companies that have a history of low debt, financial health, steady earnings, and stable profits on the theory that company performance and stock performance will hold up better if things go south.
Goldman Sachs recently pointed out some of its large-cap quality picks, and now Bank of America is doing the same for smaller- and medium-size companies. Equity and quant strategist Jill Carey Hall writes that that call makes sense because of economic conditions as well as that undercurrent of investor nerves.
"Our team's US Regime Indicator - which has continued advancing through "Mid-Cycle" throughout 2021 - ticked down in August," she wrote on Wednesday. "If it declines again in Sept., this would suggest a shift to Late Cycle."
Among those small- and mid-cap companies, Carey Hall says that investing based on quality has an incredible track record.
"High Quality stocks have outperformed the equal-weighted Russell 2000 index 100% of the time in Late Cycle regimes since 1990," she wrote. The two best quality factors are return on capital and free cash flow return on assets.
The stocks below all have "Buy" ratings from Bank of America's analysts, and they're among the top 20% of Russell 2000 stocks in one of those two categories, which suggests they'll do well in the late-cycle environment Carey Hall identified.
A select few stocks rank in the top quintile in both factors. Those are Rent-A-Center, RH, Cactus, HealthEquity, TTEC, and Enphase.
Ticker: FOXF
Sector: Consumer discretionary
Industry: Auto components
Market cap: $6.3 billion
Source: Bank of America
FunkoTicker: FNKO
Sector: Consumer discretionary
Industry: Distributors
Market cap: $715 million
Source: Bank of America
Churchill DownsTicker: CHDN
Sector: Consumer discretionary
Industry: Hotels, restaurants, & leisure
Market cap: $9.0 billion
Source: Bank of America
SonosTicker: SONO
Sector: Consumer discretionary
Industry: Household durables
Market cap: $4.6 billion
Source: Bank of America
ShutterstockTicker: SSTK
Sector: Consumer discretionary
Industry: Internet & direct marketing retail
Market cap: $4.3 billion
Source: Bank of America
PROG HoldingsTicker: PRG
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $2.8 billion
Source: Bank of America
America's Car-MartTicker: CRMT
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $793 million
Source: Bank of America
Asbury Automotive GroupTicker: ABG
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $3.6 billion
Source: Bank of America
Bed Bath & BeyondTicker: BBBY
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $2.5 billion
Source: Bank of America
HibbettTicker: HIBB
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $1.2 billion
Source: Bank of America
Lithia MotorsTicker: LAD
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $10.2 billion
Source: Bank of America
Rent-A-CenterTicker: RCII
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $4.1 billion
Source: Bank of America
RHTicker: RH
Sector: Consumer discretionary
Industry: Specialty retail
Market cap: $14.4 billion
Source: Bank of America
BJ's Wholesale Club HoldingsTicker: BJ
Sector: Consumer staples
Industry: Food & staples retailing
Market cap:
Source: Bank of America
CactusTicker: WHD
Sector: Energy
Industry: Energy equipment & services
Market cap: $1.9 billion
Source: Bank of America
Northern Oil and GasTicker: NOG
Sector: Energy
Industry: Oil, gas, & consumable fuels
Market cap: $1.2 billion
Source: Bank of America
Arena PharmaceuticalsTicker: ARNA
Sector: Healthcare
Industry: Biotechnology
Market cap: $3.7 billion
Source: Bank of America
MeiraGTx HoldingsTicker: MGTX
Sector: Healthcare
Industry: Biotechnology
Market cap: $592 million
Source: Bank of America
Vanda PharmaceuticalsTicker: VNDA
Sector: Healthcare
Industry: Biotechnology
Market cap: $932 million
Source: Bank of America
AMN Healthcare ServicesTicker: AMN
Sector: Healthcare
Industry: Healthcare providers & services
Market cap: $5.4 billion
Source: Bank of America
HealthEquityTicker: HQY
Sector: Healthcare
Industry: Healthcare providers & services
Market cap: $5.2 billion
Source: Bank of America
R1 RCMTicker: RCM
Sector: Healthcare
Industry: Healthcare providers & services
Market cap: $6.0 billion
Source: Bank of America
Allegiant TravelTicker: AGLT
Sector: Industrials
Industry: Airlines
Market cap: $3.6 billion
Source: Bank of America
Construction PartnersTicker: ROAD
Sector: Industrials
Industry: Construction & engineering
Market cap: $1.7 billion
Source: Bank of America
Generac HoldingsTicker: GNRC
Sector: Industrials
Industry: Electrical equipment
Market cap: $27.9 billion
Source: Bank of America
MeritorTicker: MTOR
Sector: Industrials
Industry: Machinery
Market cap: $1.5 billion
Source: Bank of America
ASGNTicker: ASGN
Sector: Industrials
Industry: Professional services
Market cap: $6.0 billion
Source: Bank of America
ArcBestTicker: ARCB
Sector: Industrials
Industry: Road & rail
Market cap: $1.9 billion
Source: Bank of America
Werner EnterprisesTicker: WERN
Sector: Industrials
Industry: Road & rail
Market cap: $3.2 billion
Source: Bank of America
Rush EnterprisesTicker: RUSHA
Sector: Industrials
Industry: Trading companies & distributors
Market cap: $2.4 billion
Source: Bank of America
TTEC HoldingsTicker: TTEC
Sector: Information technology
Industry: IT services
Market cap: $4.4 billion
Source: Bank of America
Enphase EnergyTicker: ENPH
Sector: Information technology
Industry: Semiconductors & semiconductor equipment
Market cap: $21.3 billion
Source: Bank of America
Louisiana-PacificTicker: LPX
Sector: Materials
Industry: Paper & forest products
Market cap: $5.7 billion
Source: Bank of America
Newmark GroupTicker: NMRK
Sector: Real estate
Industry: Real estate management & development
Market cap: $2.7 billion
Source: Bank of America