- Jared Woodard, the head of Bank of America's Research Investment Committee, is naming the companies that are most effective in turning capex and research spending into revenue growth.
- The top-ranked stocks by Woodard's measurement have returned an average of 60.4% to investors over the last 12 months. They're all "Buy"-rated.
- Woodard says this approach to stock picking also provides stability because investors tend to reward companies that make good investments whether the broader market is up or down.
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It's a simple idea: Companies that spend their money well get rewarded for it.
That might make some investors think about prized acquisitions. But Jared Woodard, head of Bank of America's research investment committee, is focused on another aspect of spending. He's developed a way to find the companies that are most effective at taking that spending and turning it into revenue.
Woodard and company are isolating the companies whose revenue growth over the last eight years can best be explained by three types of spending: Capital equipment; selling, general and administrative; and research and development.
Not surprisingly, the very best stocks by that measure are doing extremely well. Their top nine stocks have returned an average of 60.4% over the past year. The Russell 3000 index is up about 7% over that period.
"Regardless of the policy environment, history shows strong outperformance for the stocks of companies that show a strong link between higher capex or R&D and higher revenue. It tends to be an all-weather market theme," he said.
Here are Woodard's top nine stocks as measured by the revenue returns they're generating on investments in their business. All nine have "Buy" ratings from Bank of America. They're ranked from lowest to highest based on how much of that revenue is attributable to the research investments they've made.
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9. Micron Technology
Ticker: MU
Sector: Information technology
Market cap: $54.7 billion
One-year return: 15.5%
5-year compound annual growth rate: 22.3%
Source: BofA Global Research
8. Cadence Design Systems
Ticker: CDNS
Sector: Information technology
Market cap: $27.1 billion
One-year return: 32.7%
5-year compound annual growth rate: 37.3%
Source: BofA Global Research
7. Cirrus Logic
Ticker: CRUS
Sector: Information technology
Market cap: $3.7 billion
One-year return: 49.1%
5-year compound annual growth rate: 12.7%
Source: BofA Global Research
6. BioCryst Pharmaceuticals
Ticker: BCRX
Sector: Healthcare
Market cap: $880.3 million
One-year return: 45.4%
5-year compound annual growth rate: -20.4%
Source: BofA Global Research
5. KLA-Tencor
Ticker: KLAC
Sector: Information technology
Market cap: $31.2 billion
One-year return: 56.2%
5-year compound annual growth rate: 28.2%
Source: BofA Global Research
4. Advanced Micro Devices
Ticker: AMD
Sector: Information technology
Market cap: $62.7 billion
One-year return: 63.5%
5-year compound annual growth rate: 85.4%
Source: BofA Global Research
3. Lam Research
Ticker: LRCX
Sector: Information technology
Market cap: $48.7 billion
One-year return: 79.9%
5-year compound annual growth rate: 31.8%
Source: BofA Global Research
2. Applied Materials
Ticker: AMAT
Sector: Information technology
Market cap: $56.7 billion
One-year return: 34.9%
5-year compound annual growth rate: 25.8%
Source: BofA Global Research
1. Immunomedics
Ticker: IMMU
Sector: Healthcare
Market cap: $9.3 billion
One-year return: 176.8%
5-year compound annual growth rate: 54.2%
Source: BofA Global Research
source https://www.businessinsider.com/stock-picks-to-buy-for-outperformance-most-innovative-companies-bofa-2020-7
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