Scotiabank strategist Jean-Michel Gauthier is recommending affordable quality stocks as the market outlook worsens,
“The relative increase in bond volatility dwarfs that of equities. Risk-targeting strategies are thus likely to keep paring down bond exposure into the fall . Meanwhile, short selling and insider activity would suggest it’s too early to buy equities. Resilient Energy rankings in particular are at a crossroad, as they could soon face negative revisions . Favoring high Quality at an affordable price could give an edge in such an environment … Pure Value is certainly looking tired and vulnerable to a pull back due to its reliance on Energy/Financials. However, Quality has not offered the level of outperformance that would be more typical of the style. As we highlighted in the past, high valuations and poor growth have hurt its performance. For investors looking to increase defensiveness/upgrade Quality, we would point to the following list. It includes the top names with high Growth/Quality rankings while being decent on Value (30+), irrespective of their current Momentum. We also screen out Energy, miners, and lumber names which, while possessing all of the above characteristics, are unlikely to keep them in a recession.”
The stocks on the “High Quality/Growth Names with Decent Value” list are, ranked by Scotia’s quality score, Metro Inc., Capital Power Corp., Loblaw Companies Ltd., Intact Financial Corp., Spin Master Corp., Canadian National Railway Co., Pason Systems Inc., Russel Metals Inc., Winpak Ltd., Bank of Montreal, Richelieu Hardware Ltd., Nutrien Ltd., Altagas Ltd., Gildan Activewear Inc., Transalta Renewables Inc., Great-West Lifeco Inc., Pembina Pipeline Corp., Smartcentres REIT, Empire Co. Ltd., Keyera Corp., TFI International Inc., Mullen Group Ltd., Saputo Inc., Element Fleet Management Corp., BRP Inc., Canadian Tire Corp. Ltd., Uni-Select Inc., Sleep Country Canada Holdings Inc. and Gibson Energy Inc.