According to Bank of America strategist Jared Woodard, investors should prioritize stocks that generate high free cash flow, as these companies have historically outperformed and offer flexibility for future investments, debt repayment, and shareholder returns.
The S&P 500's free cash flow yield is at record lows, largely due to significant spending by major tech firms like Amazon, Alphabet, Meta Platforms, Microsoft, and Oracle, which are projected to have a combined negative free cash flow of $141 billion over the next year. In contrast, high free cash flow stocks have risen 43% year-to-date, indicating strong demand for these assets.
Bank of America has identified several non-AI companies with robust free cash flow and solid dividends, including Allstate, which boasts an 18% free cash flow yield and has seen its stock rise 17% this year.
Cigna, with a 2.3% yield, has also been highlighted for its strong earnings performance and positive analyst outlook, while Hasbro, yielding 3.2%, has benefited from growth in its trading card game segment. Overall, these stocks present opportunities for investors seeking quality and income in a fluctuating market