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Thursday, March 23, 2023

Big discount in valuation: are quality stocks on the verge of recovery?

Quality stocks have not been as cheap as they are now for around 20 years. The corona pandemic has increased sales again. Quality stocks could now be on the verge of a comeback.

• Quality stocks cheaper than they have been since the dot-com bubble
COVID-19 vaccine has intensified sell-offs
• Comeback in sight

Quality stocks have been underperforming for a long time. They are currently trading at their largest discount to the broader market since the dot-com bubble in the early 2000s, according to Yahoo Finance’s assessment of Antonio DeSpirito, BlackRock’s CIO for US fundamentals. The expert defines quality stocks as shares in a company that generates profits and has pricing power, effectively manages its balance sheets and cash flows, and can distribute attractive dividends.

Since the COVID-19 vaccine announcement last November, quality stocks have underperformed, DeSpirito’s research has shown. As a result, valuations have fallen, as investors have shifted their money more into risky stocks.

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Quality stocks make a comeback

But DeSpirito is confident and believes that quality stocks will soon make a comeback. “Economically sensitive cyclical stocks have had a very strong run since the start of the year. We don’t believe their full potential has been reached, but we see an opportunity to turn attention to quality stocks as the next beneficiaries of the cycle,” said the BlackRock CIO. In the near future, stocks should therefore perform a little stronger as the economy recovers: “We see the potential for quality to be valued higher. As the cycle progresses, the market will look to more normal growth rates, and investors will face concerns about taxes, inflation and when to change Fed policy are likely to become more cautious “, quotes Yahoo Finance. According to BlackRock, quality stocks could even lead the next leg of the global bull market, according to The Economic. “In addition to the short-term tactical opportunity, we also see a long-term structural reason for maintaining a quality focus,” says DeSpirito optimistically.

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