If we are currently in the first innings of a bull market, as some analysts think, how should you invest?
There are big issues to consider: “working from home,” for example. And there are outstanding unique stocks, like Amazon.com Inc. AMZN,
But one approach that is in the middle is factor investing: choosing companies based on their performance qualities. Analysts at Ned Davis Research released a research paper on Wednesday on factors to consider investing now and stocks that meet those criteria.
Investors should select companies based on long-term sales growth, expected price momentum, growth in cash position, and free cash flow / business value, wrote Brian Sanborn and Dung Nguyen.
They explain: expected price boost Compare next year’s highest analyst target price to the most recent share price. “It reflects the most optimistic expectation for share price growth over the next year,” they wrote. Furthermore, after a market bottom, investors naturally look for companies with strong growth potential.
Cash position growth it is a measure of balance sheet liquidity: the “12-month change in cash plus short-term investments divided by total assets,” analysts write. “A large amount of liquid assets relative to total assets indicates greater financial strength. However, too large a proportion may indicate that management has not invested in the future growth of the company. ”
Long-term sales growth. measures the trend line sales growth of the last five years. “The companies with higher values have been offering top-line growth for several years,” analysts say.
Finally, free cash flow / business value it is a measure of free cash flow (cash available for dividends, share buybacks, debt reduction, reinvestment, and acquisitions), compared to the way companies are trading. “Those who operate at low cost relative to their free cash flow provide a greater margin of safety,” write Sanborn and Nguyen. “Free cash flow / business value has been the best performing strategy over time.”
Analysts identify around 40 stocks in various sectors that meet those criteria, with the most favored listed below.
|Company and ticker||Sector|
|UnitedHealth Group Inc. UNH,
|Intel Corporation INTC,
|Bank of America Corporation BAC,
|Comcast Corporation CMCSA,
|AbbVie Inc. ABBV,
|Lockheed Martin Corporation LMT,
|CVS Health Corporation CVS,
|Morgan Stanley MS,
|Source: Ned Davis Research; NDR Stock Screener|
It is worth noting that different analysts have different views on when the bull and bear market cycles begin and end. According to Dow Jones Market Data, the DIA Jones Industrial Average DJIA,
entered its current bull market on March 26, the S&P 500 SPX,
entered its current bull market on April 8 and the Nasdaq Composite COMP,
It entered its current bull market on April 14.
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