Invest for long term and sleep at night with quality stocks, BMO says

Although the market is recovering from last week’s global sell-off , investors should consider these stocks to protect against uncertainty ahead, according to BMO Capital Markets. Stocks have been on a wild ride this month, but positive economic data has helped the market recoup last week’s losses. All three major indexes inched higher following Wednesday’s consumer price index report for July, which showed inflation slowing to the lowest level since March 2021 . This comes a day after cooler-than-expected wholesale inflation data also lifted stocks. “While we continue to be relatively bullish on the outlook for U.S. stocks (i.e., 2024 base case S & P 500 price target of 5,600, bull case 6,000), we do believe that investors will be forced to contend with higher levels of volatility over the near term as investors contemplate the strength of the economic outlook and the resulting policy stance from the Fed,” the firm wrote in a note to clients Tuesday. Indeed, the CBOE Volatility Index , known as the market’s fear gauge, has made some big moves. While it fell below 18 on Wednesday, its lowest level since Aug. 1, the index exceeded 65 during the Aug. 5 sell-off. BMO said it screened the S & P 500 for high-quality names that have low volatility for earnings per share growth as well as high levels of cash and return on equity. These kinds of stocks historically perform well during periods of increased volatility as well as periods of market strength. Here are some stocks that made the screen: Alphabet is one of the high-quality stocks on the list. Shares of the company are up more than 15% this year, and BMO sees more upside ahead, with an outperform rating on the stock. The firm isn’t alone, as Wall Street is largely bullish on the tech giant as well. To be exact, 45 of the 55 analysts reporting on the stock have a buy or strong buy rating, according to FactSet. There may be some trouble ahead for Alphabet, however. On Wednesday, a Bloomberg News report , citing people familiar with the discussions, revealed that the Department of Justice is contemplating breaking up the company. Shares fell more than 2% following the news. Kroger also made the screen, but the 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 it at underperform. The company has recently come under fire for adopting an electronic shelf labeling technology that could allow it to raise prices more easily when there is strong demand for a product. Kroger shares are down more than 4% over the past three months. Year-to-date, however, Kroger’s stock is up more than 15%. Cummins , a high-quality industrial stock, has seen shares climb around 25% in 2024. Morgan Stanley recently named it one of its top picks, saying the company could see earnings upside due to strong data center demand.