"Wall Street has overlooked a class of stocks that typically outperforms the market but is currently offering the best bargain in nearly 30 years, according to Ruchir Sharma, chair of Rockefeller International. In a Financial Times column on Sunday, the market veteran said investors have thrown up their hands amid the ongoing debate about whether the AI boom is bubble about to burst, while other assets look too pricey as well."
"'Typically, quality stocks have delivered their best returns after similar (but rare) periods of underperformance, which is why this moment feels so ripe,' he added. While the Magnificent Seven group of stocks has emerged as symbols of the AI boom, some of them actually fall into the quality category, such as hyperscalers Alphabet and Microsoft, according to Sharma. That's despite the Magnificent Seven soaring by more than 300% since late 2022, when OpenAI launched today's AI boom."
Quality stocks that combine high returns on equity, stable earnings growth, and low debt currently trade at unusually inexpensive valuations. These stocks are underperforming the broader market by about 10 percentage points in developed economies and 17 points in emerging economies. Historically, quality stocks have produced their best returns after similar periods of underperformance. Some large AI-related names qualify as quality, even as the Magnificent Seven have surged, led by Nvidia's 1,000%-plus rise. Filtering out overvalued names yields roughly 400 high-quality companies across the U.S., China, India, the UK, and Brazil.
Read at Fortune
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