Jefferies says these 15 stocks make the perfect buy for investors seeking quality, defense, and recovery as the coronavirus sends markets spinning

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• Desh Peramunetilleke, head of microstrategy at Jefferies, identifies 15 stocks that look primed for the picking in a volatile market.
• He bases his choices off of stocks that demonstrate quality, defensive prowess, and the ability to recover quickly.
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In today's coronavirus-stricken market, there's no shortage of anxiety. In fact, Bank of America's Bull/Bear indicator registered a 0.0 last week, offering a telltale sign that Wall Street is expecting more pain down the road.

With 1,000-point swings in the Dow Jones industrial average now the norm, it's no wonder why investors are searching for the most reliable stocks to scoop up amid the turmoil.

That's why Desh Peramunetilleke, head of microstrategy at Jefferies, thinks now is the time to zero in on companies that demonstrate quality, defensive proficiency, and recovery.

"High-quality stocks are relatively immune to volatility and hence are preferred during corrections," he wrote in a recent client note. "We also like rock-solid companies that can withstand the current volatility and uncertainty."

He added: "Finally, for investors starting to focus on a recovery, we present turnaround candidates based on our PB-based upside model that are also expected to generate double-digit ROEs and positive earnings growth over the next two years."

Below is the screening criteria Peramunetilleke used to uncover his stock picks:

Quality

• "High-quality: Top two quintile high-quality companies (quality score - 4/5 or 5/5) based on Microstrategy quality framework
• High profitability: Next two-year ROE and FY0 ROIC greater than 10%
• Witnessed steep correction: Down by more than 20% since the global outbreak of COVID-19"

Rock-solid defense

• "Bond-Proxies: Defensive sector stocks with 12-month forward dividend yield above 3%, sustainable dividends (no dividend cut over the past 10-years) and strong cashflow generation
• Low-risk: Stocks with low beta (less than 1x), high earnings certainty, high profitability, strong cashflow and relatively healthy balance sheet"

Recovery

• "Mean reversion upside: Next 12-month potential return upside of more than 20% with over 80% hit rate (probability of a positive return) based on current PB (PE for USA)
• Attractively valued with good profitability: 10-year PB Reilly (PE Reilly for USA) less than 50% and 20-21F ROE more than 10%"

Against that backdrop, Peramunetilleke delivers 15 stock picks (5 for each criteria) that should perform nicely in today's environment.

Quality picks are ranked by quality score, defensive picks are ranked in order of ascending 12-month forward dividend yield, and recovery picks are ranked by ascending hit-rate.

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