Home 2021 “Quality is on Sale in the Stock Market”

“Quality is on Sale in the Stock Market”

#stock #market #quality #growth


Quality is on sale in the stock market“– BlackRock (NYSE:BLK) CIO of US fundamental equities Tony DeSpirito

Higher quality stocks are trading at their largest valuation discount to the broad market since the .com bubble of the early 2000s“, Tony DeSpirito said in a new research note. 

Mr. DeSpirito defines high quality stocks as those of companies that generate profits and sport pricing power.

The companies manage their balance sheets and cash flows effectively, demonstrate strong accounting credibility and return capital to shareholders in a disciplined manner through dividends. 

Interestingly, despite the impressive fundamental features of high quality companies the stocks themselves have lagged for nearly 10 months. 

Quality stocks look to be on sale, BlackRock contends.
Quality stocks look to be on sale, BlackRock contends.

Mr. DeSpirito’s research shows that quality stocks have underperformed since COVID-19 vaccine announcements came to fore back in November 2020, sending their valuations lower.

Instead of paying up to own quality companies amidst a global economic recovery investors have largely avoided or sold these stocks in favor of riskier bets that produced strong gains early in the recovery. 

A great example of this dynamic could be seen in the relative performance of the Invesco S&P 500 High Beta ETF.

Some of the ETF’s top holdings include super risky economic recovery plays such as Carnival Corp (NASDAQ:CCL) and United Airlines (NYSE:UAL)

The ETF has gained a very solid 31% LTD, outperforming the 13% increase in the S&P 500. Meanwhile, the Schwab US Dividend Equity ETF only up 17% YTD. 

Mr. DeSpirito says the tide is about to swing back to quality now. 

We see potential for quality to rerate higher. As the cycle evolves, the market will look ahead to more normalized growth rates, and investors are likely to grow more cautious amid concerns around taxes, inflation and the timing of a Fed policy shift,” Mr. DeSpirito explained. 

Wednesday’s Market Snapshot

DJIA 33874.24-71.34(-0.21%)

NAS Comp14271.73+18.46(0.13%)

S&P 500 4241.84-4.60(-0.11%)

10-yr T-Note -2/321.489

NYSE Adv 1697 Dec 1526 Vol 823.5-M

NAS Adv 2419 Dec 1761 Vol 4.3-B

Industry Watch Strong: Energy, ConsDiscretionary, Financials

Weak: Utilities, ConsStaples, Healthcare, Materials Moving the Market NAS closed at record high Weaker-than-expected May

Have a positive day, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.