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Doll: Invest in High-ROE Stocks Amidst Market Volatility
31 Jan
Summary
- Market is in a high-risk bull phase, prone to sharp downturns.
- High valuations and speculation increase downside risk significantly.
- Financial sector, particularly big banks, offers promising high-ROE stocks.
Crossmark Chief Investment Officer Bob Doll identifies the current stock market as a "high-risk bull market," indicating an upward trend but with significant potential for sharp corrections.
Doll points to elevated stock valuations and a prevalent speculative appetite among investors as key factors contributing to the market's vulnerability. He warns that disappointing earnings reports or a more hawkish stance from the Federal Reserve on inflation could trigger a notable downturn, potentially mirroring the 20% decline observed nearly a year ago.
To mitigate these risks, Doll recommends investing in companies demonstrating high return on equity (ROE) and strong free cash flow. He believes this strategy offers insulation in the current unpredictable market. The financial sector, particularly large US banks, is identified as a rich area for such investments.
Specifically, Doll favors Bank of America (BAC), JPMorgan (JPM), Wells Fargo (WFC), and Citi (C) for their robust balance sheets and attractive valuations relative to the broader financial sector. He also notes biopharma company Gilead Sciences (GILD) as a favorable option outside of financials.
