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UBS Analyst to Barron's: 10 Stable Growth Stocks Still Worth the Risk

UBS Analyst to Barron's: 10 Stable Growth Stocks Still Worth the Risk

By    |   Monday, 23 September 2019 03:26 PM

UBS strategist Francois Trahan recently explained to Barron’s that savvy investors shouldn’t give up on all growth stocks.

“The aging bull market and rising uncertainties in the economy have turned many investors more cautious of risks, and high-growth names are usually not considered a safe place to be when things turn south,” Barron’s explained.

A growth stock is commonly defined as a share in a company that is anticipated to grow at a rate significantly above the average for the market.

"Growth investors are attracted to companies that are expected to grow faster (either by revenues or cash flows, and definitely by profits) than the rest. As growth is the priority, companies reinvest earnings in themselves in order to expand, in the form of new workers, equipment, and acquisitions," Fidelity explains.

"Don't expect dividends from growth companies—right now it's go big or go home. Growth companies offer higher upside potential and therefore are inherently riskier. There's no guarantee a company's investments in growth will successfully lead to profit. Growth stocks experience stock price swings in greater magnitude, so they may be best suited for risk-tolerant investors with a longer time horizon."

However, not all growth stocks react the same, Barron’s said. What separates winners from losers, Trahan said, is “beta”—a volatility metric measuring how much a stock deviates from the market’s movement.

“Over the past two decades, growth stocks with lower beta—the more stable ones—have outperformed their higher-beta counterparts in risk-aversion episodes, including in 2007, 2011, and 2015,” Barron’s explained.

“Beta is usually associated with cyclicality, meaning if a stock is more sensitive to the stage of the economic cycle, it tends to have higher beta, and vice versa. That explains why high-beta stocks—many of them in cyclical sectors like energy, financial, and material—tend to underperform when the economy is deteriorating.”

Trahan recommended 10 stocks that have a "buy" rating from UBS analysts and fit into this high-growth and low-beta profile.

The list includes tech giants Facebook (FB) and Alphabet (GOOG), health-care firms Boston Scientific (BSX), Encompass Health (EHC), and Medtronic (MDC), as well as relatively stable companies in cyclical sectors, such as Dollar General (DG), UGI Corp. (UGI), Intercontinental Exchange (ICE), NextEra Energy (NEE) and Diamondback Energy (FANG).

There has been a recent drop in the technology and real estate sectors as investors favored value over growth.

“The shift towards value-oriented names has been going on,” Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York, recently told Reuters. “People are looking for areas of the market that may make sense and looking to get less risk in their portfolio.”

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UBS strategist Francois Trahan recently explained to Barron’s that savvy investors shouldn’t give up on all growth stocks.
growth, stocks, ubs, barrons
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2019-26-23
Monday, 23 September 2019 03:26 PM
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