Play offense and defense with these barbell stock strategies – BMO

Still life shot of exercise equipment in a gym — Kobus Louw

Stocks can finish higher from here, but trading will likely be volatile and investors can benefit from a risk-plus-defense approach, according to BMO Capital Markets.

“Despite the S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) sitting slightly above our base case year-end target of 4,550, we believe US stocks can finish the year at higher levels since many of our bull case (5,050) assumptions have become more credible lately,” strategist Brian Belski wrote in a note.

“Nonetheless, a lot of uncertainty remains so we expect price choppiness to be a mainstay for the remainder of the year,” Belski said. “In addition, companies are operating at highly varied fundamental rates, which suggests to us that investors should be very selective in the decision-making.”

“Against this backdrop, we have been staunch advocates of a barbell approach to portfolio positioning since our work has shown this to be a favorable strategy for the prevailing market conditions,” he said.

A risk-plus-defense approach has outperformed considerably in recent weeks, Belski noted.

He recommends growth at a reasonable price for risk: “Focus on stocks with below market valuation (NTM P/E and PEG) and above market earnings growth expectations.”

Stocks rated Outperform by BMO that fit the theme:

Corteva (CTVA)
DXC Technology (DXC)
FMC (FMC)
Global Payments (GPN)
PayPal (PYPL)
SLB (SLB)
Sysco (SYY)
Travelers (TRV)

For defense, he recommends dividend growth and yield: “Focus on stocks with long track records of dividend increases, as well as above market dividend yield and growth characteristics.”

Stocks rated Outperform by BMO that fit the theme: