And replace it with new trash “low quality” stocks.
So say the quants at Bernstein Research, in inimitable quant-style.
Here’s the basic idea, though:
This year’s rally in lower quality stocks spanned most industry groups and had an impressive 6 month run from March to September. Our Risk Aversion Signal suggests that we have reached a point where a balance between low and high quality stocks is warranted (see Exhibits 1 and 2). As recessionary fears are fading, two questions have indeed gained prominence among investors: “Are there any bargains left in low-quality stocks” and “where are the best bets if there is a shift into higher quality?”
The idea here is to identify undervalued “low quality” stocks and “high quality” stocks that have further to go.
After running a few variables through their quant models those stock opportunities appear in the following sectors, Bernstein says:
• European industry groups with lower-quality long candidates include Utilities, Materials, Consumer Services, Capital Goods, Transportation, Healthcare Equipment & Services, Banks and Automobiles & Components.
• High-quality long candidates in Europe are found in Media, Consumer Services, Telecom Services, Food
& Drug Retailers, Pharmaceuticals & Biotech, Utilities and Household & Personal Products.
• In North America we select low-quality long candidates from Capital Goods, Materials, Diversified Financials, Real Estate, Consumer Services, Media, Food, Beverage & Tobacco, Telecom Services and Transportation. High-quality opportunities are found in Telecom Services, Banks, Utilities, Household & Personal Products and Food & Drug Retailers.
And in individual stock terms (click to enlarge):
Related links:
Is the dash for trash over? – FT Alphaville
A sucker’s rally or the real deal? – FT Alphaville