Context:

Jefferies advises owning quality, low-stress stocks to navigate a volatile summer amid AI-related investment concerns. They warn that AI-driven momentum could unwind if sentiment shifts, even as the theme remains a long-term winner. To weather potential AI shocks, they screen for large, high-quality names with solid fundamentals and free cash flow yields above 3%, trading below roughly 20x next-year earnings. Among the highlighted picks are AbbVie and Netflix, illustrating a blend of dependable earnings growth and resilient cash flows, with other included names like Lowe’s, McDonald’s and American Express. The outlook emphasizes cautious exposure and selective exposure to endure near-term volatility while awaiting clearer AI-market dynamics.

Dive Deeper:

• A Jefferies note cites significant AI-related capital spending, with hyperscalers investing roughly $700 billion, which could pressure margins and token costs and raise the risk of a sentiment-driven unwind in AI-led momentum.

• The firm’s screening criteria require market values over $10 billion, high quality scores, solid fundamentals, long-term free cash flow yields above 3%, limited momentum, and valuations trading under 20 times expected earnings for the next year.

• AbbVie is highlighted for a projected compound annual earnings growth of about 28% in 2026-2027 and a free cash flow yield around 5.2%, underpinned by a $15 billion Q1 revenue base and a new $10.9 billion acquisition of Apogee Therapeutics.

• Netflix is cited with a $320 billion market value and a 3.6% FCF yield, forecasting 2Q revenue growth near 13% amid a shift in content spend timing and a stock that has recently fallen despite a solid outlook.

• Other names on the list include Lowe’s Companies, McDonald’s and American Express, representing exposure to well-capitalized, durable franchises.

• Key dates noted include AbbVie’s Q2 results due July 31 and Netflix’s Q2 results due July 16, marking near-term catalysts for the selected beneficiaries.