BANK OF AMERICA: Buy these 34 high-returning but lesser-known stocks because economic trends show they’re the best bet for outperformance

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  • Bank of America says the economy might already be entering the last stage of the post-COVID cycle.
  • Strategist Jill Carey Hall says “quality” small- and mid-cap stocks thrive in late-cycle conditions.
  • Since 1990, they’ve outperformed 100% of the time during the last phase of an expansion, she says.
  • See more stories on Insider’s business page.

There’s something of a consensus forming on Wall Street that says investors should take a good, long look at “quality” stocks.

The market seems to have shaken off its fear that Chinese real estate lender Evergrande was going to be the start of a global debt crisis. But even so, there’s been a rising sense of nervousness in the market in recent weeks as experts note how long it’s been since stocks sold off in a major way – even though time alone doesn’t make those sales happen.

Investors’ worries about a downturn have prompted them to buy companies that have a history of low debt, financial health, steady earnings, and stable profits on the theory that company performance and stock performance will hold up better if things go south.

Goldman Sachs recently pointed out some of its large-cap quality picks, and now Bank of America is doing the same for smaller- and medium-size companies. Equity and quant strategist Jill Carey Hall writes that that call makes sense because of economic conditions as well as that undercurrent of investor nerves.

“Our team’s US Regime Indicator – which has continued advancing through “Mid-Cycle” throughout 2021 – ticked down in August,” she wrote on Wednesday. “If it declines again in Sept., this would suggest a shift to Late Cycle.”

Among those small- and mid-cap companies, Carey Hall says that investing based on quality has an incredible track record.

“High Quality stocks have outperformed the equal-weighted Russell 2000 index 100% of the time in Late Cycle regimes since 1990,” she wrote. The two best quality factors are return on capital and free cash flow return on assets.

The stocks below all have “Buy” ratings from Bank of America’s analysts, and they’re among the top 20% of Russell 2000 stocks in one of those two categories, which suggests they’ll do well in the late-cycle environment Carey Hall identified.

A select few stocks rank in the top quintile in both factors. Those are Rent-A-Center, RH, Cactus, HealthEquity, TTEC, and Enphase.

Fox Factory
Fox Factory
Fox Factory Markets Insider
Ticker: FOXF

Sector: Consumer discretionary

Industry: Auto components

Market cap: $US6.3 ($AU9) billion

Source: Bank of America

Funko
Funko
Funko Markets Insider
Ticker: FNKO

Sector: Consumer discretionary

Industry: Distributors

Market cap: $US715 ($AU985) million

Source: Bank of America

Churchill Downs
Churchill Downs
Churchill Downs Markets Insider
Ticker: CHDN

Sector: Consumer discretionary

Industry: Hotels, restaurants, & leisure

Market cap: $US9.0 ($AU12) billion

Source: Bank of America

Sonos
Sonos
Sonos Markets Insider
Ticker: SONO

Sector: Consumer discretionary

Industry: Household durables

Market cap: $US4.6 ($AU6) billion

Source: Bank of America

Shutterstock
Shutterstock
Shutterstock Markets Insider
Ticker: SSTK

Sector: Consumer discretionary

Industry: Internet & direct marketing retail

Market cap: $US4.3 ($AU6) billion

Source: Bank of America

PROG Holdings
PROG Holdings
PROG Holdings Markets Insider
Ticker: PRG

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US2.8 ($AU4) billion

Source: Bank of America

America’s Car-Mart
America's Car-Mart
America’s Car-Mart Markets Insider
Ticker: CRMT

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US793 ($AU1,092) million

Source: Bank of America

Asbury Automotive Group
Asbury Automotive
Asbury Automotive Markets Insider
Ticker: ABG

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US3.6 ($AU5) billion

Source: Bank of America

Bed Bath & Beyond
Bed Bath & Beyond
Bed Bath & Beyond Markets Insider
Ticker: BBBY

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US2.5 ($AU3) billion

Source: Bank of America

Hibbett
Hibbett Sports
Hibbett Sports Markets Insider
Ticker: HIBB

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US1.2 ($AU2) billion

Source: Bank of America

Lithia Motors
Lithia Motors
Lithia Motors Markets Insider
Ticker: LAD

Sector: Consumer discretionary

Industry: Specialty retail 

Market cap: $US10.2 ($AU14) billion

Source: Bank of America

Rent-A-Center
Rent-A-Center
Rent-A-Center Markets Insider
Ticker: RCII

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US4.1 ($AU6) billion

Source: Bank of America

RH
RH
RH Markets Insider
Ticker: RH

Sector: Consumer discretionary

Industry: Specialty retail

Market cap: $US14.4 ($AU20) billion

Source: Bank of America

BJ’s Wholesale Club Holdings
BJ's Wholesale Club
BJ’s Wholesale Club Markets Insider
Ticker: BJ

Sector: Consumer staples

Industry: Food & staples retailing

Market cap:

Source: Bank of America

Cactus
Cactus
Cactus Markets Insider
Ticker: WHD

Sector: Energy

Industry: Energy equipment & services

Market cap: $US1.9 ($AU3) billion

Source: Bank of America

Northern Oil and Gas
Northern Oil & Gas
Northern Oil & Gas Markets Insider
Ticker: NOG

Sector: Energy

Industry: Oil, gas, & consumable fuels

Market cap: $US1.2 ($AU2) billion

Source: Bank of America

Arena Pharmaceuticals
Arena Pharma
Arena Pharma Markets Insider
Ticker: ARNA

Sector: Healthcare

Industry: Biotechnology

Market cap: $US3.7 ($AU5) billion

Source: Bank of America

MeiraGTx Holdings
MeiraGTX
MeiraGTX Markets Insider
Ticker: MGTX

Sector: Healthcare

Industry: Biotechnology

Market cap: $US5.2 ($AU7) ($AU815) million

Source: Bank of America

Vanda Pharmaceuticals
Vanda Pharma
Vanda Pharma Markets Insider
Ticker: VNDA

Sector: Healthcare

Industry: Biotechnology

Market cap: $US932 ($AU1,283) million

Source: Bank of America

AMN Healthcare Services
AMN Healthcare
AMN Healthcare Markets Insider
Ticker: AMN

Sector: Healthcare

Industry: Healthcare providers & services

Market cap: $US5.4 ($AU7) billion

Source: Bank of America

HealthEquity
HealthEquity
HealthEquity Markets Insider
Ticker: HQY

Sector: Healthcare

Industry: Healthcare providers & services

Market cap: $US5.2 ($AU7) billion

Source: Bank of America

R1 RCM
R1 RCM
R1 RCM Markets Insider
Ticker: RCM

Sector: Healthcare

Industry: Healthcare providers & services

Market cap: $US6.0 ($AU8) billion

Source: Bank of America

Allegiant Travel
Allegiant Travel
Allegiant Travel Markets Insider
Ticker: AGLT

Sector: Industrials

Industry: Airlines

Market cap: $US3.6 ($AU5) billion

Source: Bank of America

Construction Partners
Construction Partners
Construction Partners Markets Insider
Ticker: ROAD

Sector: Industrials

Industry: Construction & engineering

Market cap: $US1.7 ($AU2) billion

Source: Bank of America

Generac Holdings
Generac
Generac Markets Insider
Ticker: GNRC

Sector: Industrials

Industry: Electrical equipment

Market cap: $US27.9 ($AU38) billion

Source: Bank of America

Meritor
Meritor
Meritor Markets Insider
Ticker: MTOR

Sector: Industrials

Industry: Machinery

Market cap: $US1.5 ($AU2) billion

Source: Bank of America

ASGN
ASGN
ASGN Markets Insider
Ticker: ASGN

Sector: Industrials

Industry: Professional services

Market cap: $US6.0 ($AU8) billion

Source: Bank of America

ArcBest
ArcBest
ArcBest Markets Insider
Ticker: ARCB

Sector: Industrials

Industry: Road & rail

Market cap: $US1.9 ($AU3) billion

Source: Bank of America

Werner Enterprises
Werner Enterprises
Werner Enterprises Markets Insider
Ticker: WERN

Sector: Industrials

Industry: Road & rail

Market cap: $US3.2 ($AU4) billion

Source: Bank of America

Rush Enterprises
Rush Enterprises
Rush Enterprises Markets Insider
Ticker: RUSHA

Sector: Industrials

Industry: Trading companies & distributors

Market cap: $US2.4 ($AU3) billion

Source: Bank of America

TTEC Holdings
TTEC Holdings
TTEC Holdings Markets Insider
Ticker: TTEC

Sector: Information technology

Industry: IT services

Market cap: $US4.4 ($AU6) billion

Source: Bank of America

Enphase Energy
Enphase
Enphase Markets Insider
Ticker: ENPH

Sector: Information technology

Industry: Semiconductors & semiconductor equipment

Market cap: $US21.3 ($AU29) billion

Source: Bank of America

Louisiana-Pacific
Louisiana-Pacific
Louisiana-Pacific Markets Insider
Ticker: LPX

Sector: Materials

Industry: Paper & forest products

Market cap: $US5.7 ($AU8) billion

Source: Bank of America

Newmark Group
Newmark
Newmark Markets Insider
Ticker: NMRK

Sector: Real estate

Industry: Real estate management & development

Market cap: $US2.7 ($AU4) billion

Source: Bank of America