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This is a time to insist on high-quality holdings. (Dreamstime/TNS)

Where to Invest Now

Although there is plenty of disagreement on Wall Street about the overall direction stocks are headed, there is remarkable accord on the best approach now: This is a time to insist on high-quality holdings, with characteristics such as consistent earnings growth, stable profit margins and solid balance sheets with little debt and strong cash flows. Snap up such stocks at reasonable valuations, when the market delivers them, writes Anne Kates Smith, editor at Kiplinger’s Personal Finance.

For Brian Belski, chief investment strategist at BMO Capital Markets, a stock exhibiting good value today is Bank of America (BAC). Netflix (NFLX), he says, delivers growth at a reasonable price; UnitedHealth Group (UNH) is his pick for yield at a reasonable price; and for high quality, he’d choose Apple (AAPL). “All are names in our portfolios,” he says.

Stocks with consistently growing dividends not only provide income but also tend to capture most of the market’s up moves and protect your portfolio on the downswings, says Saira Malik, chief investment officer at investment firm Nuveen. A stock she recommends is Linde (LIN), an industrial gas company with top managers, a resilient business even in tough times, and increasing opportunities in clean energy.

Fund investors looking for a basket of high-quality stocks should consider iShares MSCI USA Quality Factor ETF (QUAL), an exchange-traded fund with Home Depot, Microsoft and Nvidia as top holdings. Dividend seekers can explore Vanguard Dividend Appreciation (VIG) or T. Rowe Price Dividend Growth (PRDGX).

In terms of broad sector weightings, Sameer Samana, senior global strategist at Wells Fargo Investment Institute, favors energy, where he sees a favorable supply-demand story; health care, which could see an uptick in spending following the pandemic; and technology, which “really powers everything,” he says.

“You can’t talk about big-picture transformational trends without talking about technology – computing, artificial intelligence, the internet of things and so on,” he says.

Tech is also a sector of interest for Malik. “Tech has worked very well year-to-date,” she says, and warns that it could take a breather. But she’s still bullish on software and semiconductors.

Software companies are seeing strong backlogs, and because of their subscription-based, recurring revenue streams, their business is economically resilient, says Malik. Among her recommendations is ServiceNow (NOW), whose applications help companies automate IT workflows.

The semiconductor industry is notoriously cyclical and is near a trough in demand, although the stocks have rallied substantially higher in anticipation of the inflection point. Nonetheless, Malik sees more running room ahead as fundamentals improve. She likes NXP Semiconductors (NXPI), which supplies chips to the automotive industry and others. A high-quality tech pick that Malik would buy if a choppy market delivers a dip in the price is Microsoft (MSFT).

Fixed-income holdings were a disaster last year but can now provide both income and ballast for your portfolio. Gargi Chaudhuri, head of iShares investment strategy at investment firm BlackRock, recommends a “barbell” approach.

Investors can pick up attractive yields at the short end of the yield curve – think one- or two-year Treasuries or high-quality corporate bonds – while the longer-end should outperform when volatile markets push stock prices lower.

For an all-in-one solution, consider iShares Core U.S. Aggregate Bond (AGG), an exchange-traded fund that provides broad exposure to U.S. investment-grade securities at a low expense ratio of 0.03%.

Editor’s Note: Anne Kates Smith is executive editor at Kiplinger’s Personal Finance magazine,

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