Wall Street is at a critical juncture now as the Fed is likely to speed up the QE tapering ahead and the Omicron virus is spreading fast. While the previous factor may raise interest rates ahead, the latter factor may drive down bond yields due to a safe-haven rally.
In such a scenario, investors can seek safety in high-quality stocks and the related ETFs. Quality stocks are generally rich in value characteristics like strong return on equity, low earnings variability, higher free cash margins and low debt to equity.
Thanks to the above-average and high-quality traits, quality ETFs may go a long way in protecting one’s portfolio in turbulent times. SPDR MSCI USA StrategicFactors (NYSE:QUS) ETF QUS, VanEck Vectors Morningstar Wide Moat ETF MOAT and iShares Edge MSCI USA Quality Factor (QUAL) are some of the ETF picks. There are some quality stock picks too which include Bunge (NYSE:BG) Limited BG, Newtek Business (NASDAQ:NEWT) Services NEWT and ConocoPhillips (NYSE:COP) COP.
Why to Pick Quality Investments
The broader market has become extremely volatile and news-driven. We have been seeing market slumps on Omicron fear and following relief rallies on any positive update on the virus front. Meanwhile, inflation has been bothering the world, which may lead the Fed to announce a faster QE tapering and interest rate hikes in the coming days.
While any kind of Fed policy tightening may push up bond yields (which in turn may cause a market crash), virus fear may bolster the safe-haven rally and drag down the bond yields. In such a scenario, long-term investors need to be mindful and focus on fundamentals. On that front, quality ETFs and stocks appear to be great bets.
ETF picks
SPDR MSCI USA StrategicFactors ETF (QUS)
The underlying MSCI USA Factor Mix A-Series Index measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility (read: 5 Defensive ETF Bets as Omicron Enters the United States).
VanEck Vectors Morningstar Wide Moat ETF (MOAT)
The fund follows an index which tracks the overall performance of the “attractively priced companies with sustainable competitive advantages.” As a result, this fund also calls for quality exposure. MOAT tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages.
iShares Edge MSCI USA Quality Factor (QUAL)
The fund looks to follow large- and mid-cap U.S. stocks displaying positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage).
Stock Picks
We highlight stocks with return on equity (ROE) of at least 10%, positive five-year historical EPS growth, current-year EPS growth rate at least 5% and dividend yield greater than 2%. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
ConocoPhillips (COP)
ConocoPhillips is primarily involved in the exploration and production of oil and natural gas. Considering proved reserves and production, COP is the largest explorer and producer in the world.
Zacks Rank: #1
ROE (TTM): 11.87%
5 Year Historical EPS Growth: 59.56%
Current Year’s Estimated Earnings Growth: 715.86%
Dividend Yield: 2.50%
Bunge Limited (BG)
Bunge Ltd. is an integrated global agribusiness and food company spanning the farm-to-consumer food chain. BG processes, produces, moves, distributes and markets food on five continents.
Zacks Rank: #1
ROE (TTM): 29.63%
5 Year Historical EPS Growth: 39.67%
Current Year’s Estimated Earnings Growth: 44.92%
Dividend Yield: 2.42%
Newtek Business Services (NEWT)
Newtek Capital hails from Financial - SBIC & Commercial Industry. NEWT resulted from the combination of the businesses previously owned by BJB Holdings, Inc. and REXX Environmental Corporation.
Newtek is operating as a holding company for a network of partner companies in a collaborative and coordinated effort to develop successful businesses in a number of existing as well as emerging, technological business lines.
Zacks Rank: #1
ROE (TTM): 20.18%
5 Year Historical EPS Growth: 28.31%
Current Year’s Estimated Earnings Growth: 66.83%
Dividend Yield: 11.66%
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ConocoPhillips (COP): Free Stock Analysis Report
Bunge Limited (BG): Free Stock Analysis Report
Newtek Business Services Corp. (NEWT): Free Stock Analysis Report
VanEck Morningstar Wide Moat ETF (MOAT): ETF Research Reports
SPDR MSCI USA StrategicFactors ETF (QUS): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research