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There are two broad categories of Wall Street strategists at the moment. On one hand are those like BofA Securities U.S. quantitative strategist Savita Subramanian, who believe that a new market cycle is underway with an extended rally just beginning. Others, like UBS’s global strategist Andrew Garthwaite, believe that markets are overestimating future economic growth and that a slowdown is ahead.

Morgan Stanley U.S. equity strategist Michael Wilson is very much in the latter, late-cycle camp, seeing current conditions analogous to the late 1990s. He believes that massive monetary and fiscal support during the pandemic has combined with de-globalization, a secular rise in borrowing costs, increased geopolitical tensions, a shift in the power dynamic from capital to labour, and potential U.S. tax increases to make market leadership uniquely difficult to predict.

Mr. Wilson’s solution for investors is to own the high-quality cyclical stocks that will outperform in a “no landing”, no U.S. economic slowdown scenario, as well as high-quality growth stocks that should perform well in a shallow slowdown environment.

The strategist performed a series of stock screens to identify promising U.S. investment opportunities. The high-quality growth screen looked for companies with higher than average balance sheet quality, classified as growth by Morgan Stanley’s proprietary classification process, and are overweight rated by Morgan Stanley analysts.

Stocks uncovered by the quality growth screen include Lululemon Athletica, Domino’s Pizza, Amazon.com, Monster Beverage Corp., Colgate Palmolive Co., Boston Scientific Corp., Mastercard Inc., Adobe Inc., Crowdstrike Holdings Inc., Apple Inc., Nvidia Corp., and Meta Platforms Inc.

The high-quality cyclical stock screen is the same except using companies classified as cyclicals at Morgan Stanley. Stocks on the resulting list include Schlumberger Ltd., Equitrans Midstream Corp., Sherwin Williams Co., Deere & Co., Home Depot, Mastercard (again), Blackstone Inc., Fortinet Inc., Seagate Technology Holdings plc, Nvidia (again), and Alphabet Inc. (also on the growth list).

A third screen looks for companies with strong profitability or, in Mr. Wilson’s terms, operational efficiency. Stocks on this list most likely to interest Canadian investors include International Flavors and Fragrances, Cummins Inc., Starbucks Corp., Lowes Companies, Becton Dickinson and Co., McKesson Corp., Biogen Inc., Thermo Fisher Scientific Inc., Salesforce Inc., Dell Technologies Inc., and Constellation Energy Corp.

-- Scott Barlow, Globe and Mail market strategist

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The Globe Investing Club 2024: Let the competition begin!

This week we mark the start of the second annual Globe and Mail Investing Club, where intrepid reporters test their acumen against the broader market and the good sense of our readers with stock picks for the coming year. David Berman has all the details here. Or go direct to this form to let us know your picks.

Stocks to ponder

Brookfield Renewable Partners LP (BEP-UN-T) Here’s a bit of a surprise: the beleaguered green energy business, which has been in a downward spiral since interest rates started to rise, may be one of those saved by the rapid growth of new AI technology and the data centres needed to support the systems. That’s because AI requires power – lots of power – and existing generating systems don’t have enough resources to meet the growing demand. And as Gordon Pape explains, a company that can benefit is Brookfield Renewable, which saw its price jump by almost a third in the first 10 days of May.

The Rundown

Dividend investing has lost its mojo. Here’s why – and how to adapt

Dividend investing is going through a rough patch. The huge outperformance of high-yield stocks over a long stretch of time offers a powerful argument for dividend investing. Yet the past five years have seen this dividend advantage shrivel. Ian McGugan has some thoughts on what investors should do about it.

A slice of frugal dividends from the United states

Wall Street offers an attractive alternative to the exceptionally well performing Canadian Frugal Dividend portfolio. Its U.S. counterpart has generated average annual gains of 12.1 per cent since the turn of the century and beat the market handily. Norman Rothery tells us more. (And for an update on all his portfolios for dividend and value investors, click here)

How investors can prepare for deglobalization

The world experienced a prolonged period of economic globalization from 1981 to the beginning of 2017. This period effectively ended when Donald Trump became president and began implementing an “America First” trade policy. No matter who wins the White House this November, this deglobalization trend will accelerate. And this will have a profound impact on the investment returns of various asset classes for at least a generation. Veteran fund manager Tom Czitron has some suggestions on how to position portfolios.

Welcome to the Wild West of Canadian tech stocks

Several Canadian tech companies have reported upbeat quarterly financial results this month, but disappointing guidance for the year ahead has hammered share prices. Should investors bet on rebounds? David Berman shares his thoughts.

Here’s what really drives your returns

If you, like most investors, have a time frame measured in decades, the explanation of how you did is driven by a consistent list of influences, and the pecking order is pretty much carved in stone. Tom Bradley provides the list.

Others (for subscribers)

Markets and economists react: Odds of a June BoC rate cut strengthen after inflation data

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: C-suite executive invests over $900,000 in this high-yielding utility stock

Tuesday’s Insider Report: President invests over $3.8-million in this stock yielding 5.6%

Ted Dixon: CEO buys as Sprott eyes a physical copper exchange traded trust

What’s up in the days ahead

Robert Tattersall will tell us why Magellan Aerospace is a stock to put on your watch list.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff

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