What to buy now with the market at all-time highs, according to UBS
Stocks may be trading near all-time highs, but UBS said that meaningful opportunities still exist in the market, including Broadcom and Accenture . Hopes of easing geopolitical tensions, alongside a strong earnings season, have propelled stocks to multiple new record highs this year. A technology-driven rally pushed both the S & P 500 and Nasdaq Composite to new intraday and closing highs on Tuesday. But even with stocks at these high levels, UBS believes that investors can find buying opportunities if they know the right places to look. In a Tuesday note, the bank suggested two baskets for investors to consider: stocks with inflecting fundamentals and quality laggards. Stocks within the first category are improving their cash flow return on investment, or CFROI, at a higher rate than peers, while also offering strong momentum profiles. “This screen is refined further to exclude the most expensive companies on the valuation relative to peers and history factors,” wrote a team led by UBS HOLT sector specialist John Talbott. “Investors seeking opportunities with accelerating returns on capital and robust business momentum will find this screen particularly compelling.” Select names from the basket are shown below: One stock on the list was Broadcom, up 22% this year. The semiconductor manufacturer has a forecast cash flow return on investment at 77.1%, UBS found. “AVGO’s leadership in ASIC chips is translating into strong results as inference becomes an increasingly important component of AI workloads. CFROI is forecasted to exceed 80% in 2027, representing the 3rd highest forecasted CFROI level across the Tech sector and the 5th highest across all companies globally,” UBS wrote. “Despite fundamentals inflecting to new highs, the market is pricing CFROI to revert toward pre-AI era levels with mid-single-digit asset growth. The combination of high quality, low embedded expectations, and strong momentum (AVGO ranks in the 100th percentile of CFROI revisions in U.S. Tech) makes AVGO a ‘Best in Class’ stock on HOLT’s investment styles,” the firm added. Other names on the list included Nvidia , Micron Technology , Palantir Technologies and Reddit . UBS’ quality laggards basket includes high-quality companies, defined by having CFROI forecasts of at least 8% and quality peer ranks above 50%. These stocks have also declined 5% or more year to date. “These companies also trade at a discount relative to their historical valuations,” the firm added. “Notably, a large portion of these companies are in the Software and IT Consulting industries, reflecting market concerns about the long-term impact of AI on their business models.” Shares of Accenture have tumbled 34% this year. UBS forecasts the consulting firm’s CFROI to come in at 43.7%, and noted that Accenture has consecutively generated CFROI levels above 20% for the last two decades, a feat which has only been accomplished by 30 companies globally. “Near-term consensus forecasts point to CFROI improving to nearly 45%. Despite improving fundamentals, investor concerns over disintermediation and margin pressure from emerging AI models have weighed on sentiment,” the firm added. “From a valuation perspective, ACN now trades at its widest ever discount to the market on an Economic P/E basis, while, on an absolute basis, the stock has only been cheaper in 2009 during the depths of the financial crisis.” Other quality laggard names include Microsoft , Adobe , Take-Two Interactive and Salesforce.
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