By Ian Salisbury
Wall Street can't seem to make up its mind about where the U.S. economy is headed next. In that scenario, investors' best move may be to simply stick with what's working, such as tech, utilities and industrials stocks, according to UBS.
For weeks, investors have been fretting about the health of the U.S. economy, thanks to stubborn inflation, a softening job market and political disputes over tariffs and the role of the Federal Reserve.
Meanwhile the stock market appears to be in a see-no-evil, hear-no-evil mood. On Monday, the S&P 500 was down 0.4%, but remained only about 0.5% below its Aug. 14 all-time high. Year to date it is up about 9.5%.
Given all the mixed signals, investors' best move may be to stay the course, according to a note Monday by a UBS research team led by strategist Sean Simonds. "Stick to what's working," he wrote.
While the strength of the U.S. economy remains "in flux," Simonds notes that corporate profits remain strong, with investors expecting 9% growth in S&P 500 earnings this year and more companies revising earnings upward than downward.
As a result, UBS says technology, communications, industrials and utilities stocks continue to shine in its proprietary stock screening methodology, which combines macroeconomic factors with stock specific earnings, valuation data and more.
Stocks with the highest scores, according to UBS's model, include tech names Qualys, Broadcom and Hewlett Packard Enterprises.
Shares of semiconductor giant Broadcom have surged 27% so far this year, just a hair behind larger rival Nvidia, which has returned 29%.
It is worth noting Broadcom may face a raised bar in the second half of the year. The stock, which now boasts a market capitalization of $1.4 trillion trades at 31 times forward earnings, up from 28 times in January. Shares fell about 5% following the company's second-quarter earnings report in early June, despite reporting a better-than-expected profit. It's likely a sign of investors' outsize expectations.
While tech names fill out the top ranks of UBS's list, there are picks in plenty of other sectors too. Healthcare names include Alnylam Pharmaceuticals, Medpace and drug distribution giants Cencora and Cardinal Health.
Consumer stocks include Kroger, up 15% so far this year, and Dollar Tree, up nearly 50%. Gloomy consumer sentiment has actually benefited Dollar Tree, which has recently seen growth from wealthy shoppers looking to pinch pennies.
Share price gains have pushed Dollar Tree's forward price-to-earnings ratio to nearly 19 from around 13 at the start of year. But considering the average S&P 500 stock trades at 22, that doesn't look exorbitant.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
August 25, 2025 16:24 ET (20:24 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.