Jefferies recommends owning quality, low‑stress stocks to ride out the summer as markets become more volatile amid heightened concerns around artificial‑intelligence investments. AI‑related questions now include potential overcapacity, the $700 billion capital‑spending spree by hyperscalers, and rising costs for tokens and fees paid to AI models, according to Desh Peramunetilleke, head of quantitative strategy at Jefferies.
The popularity of AI is evident: the S&P 500 momentum index has outperformed the broader market by more than 70 % since 2024, approaching the levels seen during the dot‑com boom of the late 1990s. While momentum strategies previously featured materials and defense names, AI now dominates the rally, which “increases the risk of an unwind on adverse sentiment,” Peramunetilleke wrote.
“While we still see the theme as a long‑term winner, the above reasons could drive an unwinding of the AI‑led momentum,” he added.
To mitigate potential AI‑driven turbulence, Peramunetilleke’s team identified high‑quality companies with low momentum. The screen targets firms with:
- High quality scores
- Market capitalizations exceeding $10 billion
- Solid fundamentals and long‑term free‑cash‑flow yields above 3 %
- Limited momentum
- Attractive valuations trading for less than 20 times expected earnings over the next year
Among the 10 stocks selected, AbbVie stands out with a top quality score. Jefferies projects compound annual earnings growth of nearly 28 % in 2026‑2027 and a free‑cash‑flow yield of 5.2 %, one of the strongest growth‑cash flow combinations on the list. The drugmaker reported $15 billion in worldwide net revenues in Q1, driven largely by a $7.3 billion immunology portfolio. AbbVie recently strengthened its next‑gen immunology pipeline by acquiring Apogee Therapeutics for $10.9 billion, its largest deal in over five years. The stock has climbed 25 % in the past three months and yields 2.7 %.
Netflix, with a $320 billion market value and a 3.6 % free‑cash‑flow yield, also earned a high quality score. The streaming giant forecasts second‑quarter revenue growth of 13 % while noting that content spending will be weighted toward the first half of the year. Shares fell 10 % in mid‑April after guidance fell short of expectations, and the stock is down 18 % year‑to‑date.
Additional names on Jefferies’ quality, low‑stress screen include Lowe’s Companies, McDonald’s, and American Express. These firms meet the same rigorous criteria of quality, low momentum, and attractive valuation.
