Bernstein’s approach to stock picking is beating the market by 6% annually, according to the firm’s figures. The latest picks from its model include Meta and American Express. Instead of relying on fundamental research or quantitative analyses alone to identify stocks that will outperform, Bernstein combines both models. It also excludes names that are too crowded with institutional investors. “Quantitative and fundamental approaches to stock selection each add value to the investment process … but we found that strategies integrating the two techniques produce better results than either method alone,” a team of analysts wrote in a note Wednesday. The Wall Street firm used its Bernstein and Autonomous sell-side analysts’ recommendations as a proxy for the fundamental stock picker. On average, the analysts’ outperform rated stocks beat the S & P 500 by 1.8% since 2004. Meanwhile, the stocks ranked in the best quintile of its quantitative model generated 3.8% annualized returns relative to the market over that same time period. When the fundamental research and quantitative model agree, with an overweight rating and ranking in the top quintile of Bernstein’s quantitative model, the returns outperform the market by 6.1%, the analysts said. Here are 6 stocks that made the cut. Meta is on a path towards more efficiency and most of the cost reduction efforts are now likely priced in by investors, Bernstein analyst Mark Shmulik said. With the focus now on top-line growth, he believes the Facebook parent is well positioned to mark and bounce off the bottom in ad revenue growth over the next six months. “The bear case is dead for now as AI-led improvements to the ad product have dollars coming back up the funnel to Meta while engagement trends remain encouraging tied to now mostly completed investment into the content recommendation engine and Reels,” Shmulik said. The company will also benefit from a potential TikTok ban, Bernstein believes. “Despite strong recent stock performance, Meta is still trading at a discount to long-term average multiples (13x FY24 EPS),” Shmulik wrote. His $225 price target implies about 12% upside from Tuesday’s close. Meanwhile, American Express should be better insulated than its peers in a recession thanks to its focus on higher-income and credit quality borrowers, Bernstein analyst Brian Foran said. The company has the strongest loan growth and its credit quality is the best, he said. “In recent years, Amex has stepped up its investment in marketing and the overall consumer value proposition, which led the company to raise its long term growth algorithm to over 10% annual revenue growth and mid-teens EPS growth,” Foran wrote. “From a valuation standpoint, Amex is currently trading at a discount to long-term average multiples despite the stronger growth trajectory going forward,” he added. His $200 target price suggests nearly 26% upside from Tuesday’s close. L3Harris Technologies is the firm’s top pick in the defense sector. The company offers strong growth in medium-term free cash flow at an attractive valuation and low risk, analyst Douglas Harned said. While supply chain disruptions and concerns about its proposed acquisition of Aerojet Rocketdyne, the supply chain pressures appear to be stabilizing, he said. “On the AJRD deal, while there can be debate about the price, LHX shares fell far more on the announcement than any reasonable premium estimate would justify, and we see the FY24 budget request’s investment in space, missile & munitions as strengthening the case for upside from that acquisition,” Harned wrote. According to his $265 price target, the stock could rally 38% from Tuesday’s close. Lastly, Kroger should benefit as inflation rolls over and retailer gross margins rebound, analyst Dean Rosenblum said. He believes the grocer, as a scale brick-and-mortar player in highly fragmented local markets, is exceptionally well positioned to gain share over time and grow faster than the overall market as the herd continues to thin out. Kroger’s pending acquisition of Albertsons would also nearly double Kroger’s U.S. population reach, he said. Rosenblum’s price target of $54 implies 10.4% upside from Tuesday’s close. — CNBC’s Michael Bloom contributed reporting.
