Here Are The Top Picks Of Bernstein's Stock-Picking Model Today

Taking a statistical approach to stock picks, Bernstein has beaten the market by 6% a year, according to the company's figures. Meta, American Express, and Walmart are among the most recent picks from the model.

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As a result, Bernstein ensures that stocks that will outperform, neither rely solely on fundamental research nor quantitative analyses. It also excludes stocks that are too crowded with institutional investors in order to minimize the risk of underperformance.

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A team of analysts found that strategies integrating quantitative and fundamental approaches to stock selection produced better results than either method alone.

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It was found that the Wall Street firm took as a proxy the fundamental stock picker's recommendations that were generated by its Bernstein and Autonomous sell-side analysts. In general, analysts' outperform-rated stocks have outperformed the S&P 500 by 1.8% on an annualized basis since 2004. During that same span of time, the stocks ranked in the best quintile of its quantitative model, compared against the markets as a whole, generated a 3.8% annualized return.

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The analysts found that returns outperformed the market by 6.1% when fundamental research and Bernstein's quantitative model agreed on an overweight rating.

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The following stocks made the cut:

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• Meta Communications

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• American Express Financials

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• Pioneer Natural Resources

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• L3Harris Technologies

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• The Kroger Co.

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• Hewlett Packard Enterprise

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A major cost reduction effort has been priced in by investors and Meta is on its way to becoming more efficient, according to Bernstein analyst Mark Shmulik. In the next six months, the Facebook parent is well positioned to rebound from the bottom in ad revenue growth, he believes.

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Bernstein believes that TikTok's potential ban would also benefit the company.

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In spite of Meta's recent strong performance, Shmulik argues that the stock still trades at a discount to long-term average multiples (13x FY24 earnings per share) despite its recent strong performance.

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There is about a 12% upside to the close of Tuesday if he is correct in his $225 price target.

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Bernstein analyst Brian Foran believes American Express has the strongest loan growth in the industry and its credit quality is the best, which would make it less vulnerable to a recession than its peers, he said. As a result, American Express should be better insulated during a recession.

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As a result of the company's increased investment in marketing and the overall consumer value proposition in recent years, Foran writes that Amex has raised its long-term growth algorithm to over 10% yearly revenue growth and mid-teens EPS growth in recent years.

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“Despite Amex's stronger growth trajectory, it is currently trading at a discount to long-term average multiples,” according to him.

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As a result, he expects the price of the stock to rise almost 26% from Tuesday's close to $200.

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In the defense sector, L3Harris Technologies is the firm's top pick. Analyst Douglas Harned cites its strong free cash flow growth, attractive valuation, and low risk, making the company an attractive choice. However, he said that supply chain pressures appear to be stabilizing despite disruptions in its supply chain and concerns surrounding the proposed acquisition of Aerojet Rocketdyne.

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LHX shares fell much more than any reasonable premium estimate could justify on the announcement of the AJRD deal, Harned said, and a significant investment in space, missiles, and munitions in the FY24 budget request strengthens the case for upside from that purchase.

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A 38% rally from Tuesday's close is expected according to his $265 price target.

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As for Kroger, analyst Dean Rosenblum said that the company will benefit from rising inflation and a recovery in retail gross margins.

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Grocery stores, as scale brick-and-mortar players in highly fragmented local markets, are ideally positioned with growing share to gain market share as the herd thins out. As a result of Kroger's pending acquisition of Albertsons, its U.S. population reach would nearly double.

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Compared to Tuesday's close, Rosenblum's $54 price target implies 10.4% upside.