Investors should look for companies in the third quarter that are on solid ground, both in their fundamental business and their stock price, according to Piper Sandler. Michael Kantrowitz, chief investment strategist and head of portfolio strategy, said in a note to clients that the next steps for the market and economy are unclear but that a subgroup of stocks should be able to power through. "We believe general uncertainty and lack of a clear economic trajectory will persist into the foreseeable future.
Thus, we continue to recommend overweighting quality fundamentals at a reasonable price," the note said. The firm's yardsticks for quality fundamentals include free cash flow yield and positive earnings revisions. Piper Sandler's macro select model includes some of the big tech companies that have outperformed in recent years, in part due to their combination of solid balance sheets and strong growth.
But it also includes some consumer-focused companies that the investment bank says are on solid footing. Alphabet has fallen behind some of its peers in the race to become the biggest stock in the world, but that may mean it is less overbought than other tech giants such as Nvidia or Microsoft. Shares are up 32% this year, pushing the Google parent's market cap above $2 trillion.
Two other stocks on the list with momentum are Chipotle Mexican Grill and Wingstop , up roughly 37% and 66%, respectively, in 2024. Both restaurant chains are succeeding despite signs that more consume.