“It’s a good idea to buy high-quality stocks,” the head of quantitative strategies said. “I wouldn’t put all my chips on strong balance sheet. That’s why you need a collection of indicators to make sure you aren’t buying something that’s significantly gone up in price."
The good news is that quality stocks have traded at richer levels in absolute terms.
In Europe especially, there are plenty of reasonably valued shares with robust financial profiles in industrials, luxury goods, consumer discretionary and healthcare sectors, according to Bank of America. The MSCI Europe Quality Index is trading at 17.1 times forward earnings, compared to about 18.5 times for the S&P 500 Quality Index.
“Avoiding companies with strong balance sheets is a high-risk strategy, given the recession risk is still around,” said Olivia Engel, the chief investment officer for active quantitative equities at State Street Global Advisors. All the same, investors “shouldn’t pile into safety at any price. Balance is key,” she said.
This article was provided by Bloomberg News.