Anika Begay
While the market is recovering from last week’s global sell-off, investors should consider these stocks to hedge against uncertainty ahead, according to BMO Capital Markets. Stocks have been wild this month, but positive economic data has helped the market recover last week’s losses. All three major indexes edged higher after Wednesday’s consumer price index report for July showed inflation slowing to the lowest level since March 2021. That comes a day after colder-than-expected wholesale inflation data also lifted stocks. “While we remain relatively bullish on the outlook for U.S. equities (i.e., 2024 S&P 500 base price target of 5,600, bull case of 6,000), we believe investors will be forced to contend with higher levels of volatility in the near term as investors contemplate the strength of the economic outlook and the Fed’s subsequent policy stance,” the firm wrote in a note to clients Tuesday. Indeed, the CBOE Volatility Index, known as a gauge of market fear, has been making big moves. While it fell below 18 on Wednesday, its lowest level since Aug. 1, the index rose above 65 during the Aug. 5 sell-off. BMO said it has been looking at the S&P 500 for high-quality names that have low volatility for earnings per share growth, as well as high levels of liquidity and return on equity. These types of stocks have historically performed well during periods of heightened volatility and periods of market strength. Here are some stocks that made the cut: Alphabet is one of the high-quality stocks on the list. The company’s shares are up more than 15% this year, and BMO sees more upside ahead, giving the stock an Outperform rating. The company isn’t alone, as Wall Street is also largely bullish on the tech giant. To be precise, 45 of 55 analysts reporting on the stock have a Buy or Strong Buy rating, according to FactSet. However, Alphabet may have some trouble ahead. On Wednesday, a Bloomberg News report, citing people familiar with the discussions, revealed that the Department of Justice is considering splitting up the company. Shares fell more than 2% on the news. Kroger has also been on the radar, but Wall Street has mixed feelings about the grocer. Half of the 22 analysts covering the stock rate it a Strong Buy or Buy, 10 have issued a Hold rating, and one has rated it as Underperform. The company has recently come under fire for adopting electronic shelf-labeling technology that could allow it to more easily raise prices when there is high demand for a product. Kroger shares have fallen more than 4% in the past three months. However, year-to-date, Kroger shares are up more than 15%. Cummins, a high-quality industrial stock, has seen shares rise about 25% in 2024. Morgan Stanley recently named it one of its top picks, saying the company could see earnings upside from strong demand for data centers.
