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In an economic downturn, select quality growth stocks could help investors withstand a market pullback, according to Adam Parker, founder of Trivariate Research. Parker anticipates rapidly growing businesses will outperform as the economy slows down. With this in mind, he identified a list of quality growth stocks that can remain resilient and provide growth even in tumultuous times. “Adjusting for the S & P 500 performance, only the highest quality quartile of growth has cumulatively generated alpha over the last 25 years among mega/large caps,” said Parker. “Among SMID cap growth stocks, the highest quality bucket has also been the best by far, generating more alpha than the highest quality mega/large caps.” To define quality, the firm considered profitability, dividend growth and payout ratio, leverage, credit risk, short interest and other factors to determine which stocks fell in the quality bucket. When evaluating growth, the firm studied various signals such as revenue growth, consensus long-term earnings per share, leverage and other factors. The names that fell in the top third are growth stocks, said Parker. Several of Trivariate’s high-quality growth picks featured large-cap tech names, including Apple and Microsoft . Microsoft shares have surged this year as the company benefits from a boom in artificial intelligence. Shares have jumped nearly 39% in 2023 as the tech juggernaut continues to build on its AI investments. Microsoft announced earlier this year a new multibillion-dollar investment in ChatGPT -maker OpenAI, lifting market optimism around the stock. Apple shares have also popped 41% in 2023. However, the company has taken a slight hit during the current quarter, dipping more than 5% amid a late summer pullback in Big Tech shares. Other technology names highlighted by Trivariate include software company ServiceNow and cloud computing services provider Akamai Technologies . Health insurance companies UnitedHealth Group and Humana also made the grade. Shares for the two companies are down 9.4% and 8.4%, respectively, in 2023. — CNBC’s Michael Bloom contributed to this report.
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