LIVE MARKETS-Favour quality stocks with balance sheet strength over high profitability ones - JPM
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FAVOUR QUALITY STOCKS WITH BALANCE SHEET STRENGTH OVER HIGH PROFITABILITY ONES - JPM
While crunching the numbers, JP Morgan quants have split their quality stocks basket into two distinct groups: those with strong balance sheets and those with high profitability, and they flag that the outlook for the former looks a lot brighter.
Post-GFC, quality stocks have been enjoying a bull market driven by themes like low volatility, secular growth and ESG.
"However, as these stocks appreciated, they have become riskier (higher beta/ volatility), with high market cap stocks in the USA & Europe also benefiting from passive flows."
And zooming in, quality stocks with strong balance sheets now look like the better bet, because a post-pandemic boost to sales and profitability amid high inflation may be in the rear view mirror, say the quants.
"Trading at a premium (18.1x PE), (high profitability quality stocks) face sharper EPS cuts and higher betas," they write.
Conversely "Balance Sheet Strength" quality stocks have improving earnings expectations and a valuation edge as they trade around 16.7x PE, brightening their outlook.
"Sector tilts favor Staples and Health Care for Balance Sheet Strength, while High Profitability leans towards Industrials and Tech."
(Lucy Raitano)
EARLIER LIVE MARKETS POSTS:
WORRIES BUILDING BUT EARNINGS, GROWTH HOLDING UP CLICK HERE
STOXX HEADS HIGHER, SET FOR WEEKLY GAIN CLICK HERE
EUROPE BEFORE THE BELL: FUTURES HIGHER AS CONSUMER HOLDS UP CLICK HERE
STOCKS BUOYANT BUT JAPAN VOTE BRINGS RISK CLICK HERE
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