The recent broad market pullback has created an entry point into high-quality stocks, says Strategas Securities. Despite the volatility of last week, the S & P 500 managed to recoup most of its losses and closed just 0.04% lower for the week last Friday.
Nonetheless, many stocks are trading below their highs from earlier in the year. "With volatility comes opportunity," chief investment strategist Jason De Sena Trennert wrote in a Monday note. "We believe this is an opportunity for long-term investors to add exposure to companies that are not dependent upon 'the kindness of strangers' as the business cycle develops.
" Trennert said he prefers high-quality names given high-yield spreads, which leave little room for error. With this in mind, the strategist gave a list of promising cash generative companies. Here are the following criteria for his screener: Off 52-week highs Free cash flow yields above 5% EBIT/total interest coverage ratios above 5x Take a look at some of the names and where analysts see them headed next.
Energy company Chevron has the highest total interest coverage ratio of 51 on the list. Shares are down 16% from their 52-week high as of Monday morning, per Strategas. Wall Street is bullish on Chevron.
The average price target implies around 23% upside from where shares closed on Monday, and the majority of analysts covering the stock rate it a strong buy or buy, according to LSEG. Chevron has a free cash flow yield of 6.3%.
Qualcomm is another high-quality stock that was heavily oversold during last week's rout. The stock is trading 29% below its 52-week high. According to the consensus price target, shares could rally nearly 30% from their current level, per analysts surveyed by LSEG.
The chipmaker has a free cash flow yield of 5.6% and an interest coverage ratio of 13.9.
Nearly 70% of analysts on the stock have issued a strong buy or buy rating. Shares slipped almost 1% on Monday after Wolfe Research downgraded Qualcomm to peer perform from outperform. The firm believes Apple's internal modem use will have an effect on the company.
QCOM YTD mountain Qualcomm shares in 2024 Online dating platform Match Group is another name that made the cut. The company has a free cash flow yield of 10.7% and a total coverage ratio of 5.
5. Shares are off from their 52-week high by 27% and are negative by around 7.5% year to date.
Nonetheless, analysts polled by LSEG believe the stock can climb 25.4% from its current level. About three-fifths of analysts covering the company hold a buy or strong buy rating.
— CNBC's Michael Bloom contributed to this report..
