These are the types of stocks to look for after the steep decline takes some froth out of the market, according to BofA

• The steep stock market decline has created opportunities for investors to "buy some dips," according to Bank of America's Savita Subramanian.
• Some froth has been removed from markets and investors should be selective in their purchases, BofA said.
• These are the types of stocks investors should buy amid the broader stock market decline, according to BofA.
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Investors should start to "buy some dips" in the stock market following its near 10% decline, according to Bank of America's Savita Subramanian.

In a Tuesday note, Subramanian highlighted that the S&P 500's near 10% sell-off marks its weakest start to a year since 2008. And for the Nasdaq 100, its more than 11% decline since the start of 2022 is the worst start to a year since 1972.

"Equities sold off in tandem with an increase in real yields, popping some bubbles and pushing stocks closer to intrinsic values," Subramanian explained. The S&P 500 forward price-to-earnings ratio dipped below 20x for the first time since the start of the COVID-19 pandemic, which is encouraging, but it still remains above its average, according to the note.

The decline has led Subramanian to believe that some froth has been removed from the market, which is healthy.

The sharp and swift sell-off in stocks means investors can start to be selective and buy companies that have sold off despite their strong fundamentals, according to the analyst. "We find some tech stocks along with other companies that now look attractive," Subramanian said, adding that investors should put money to work in companies that have little vulnerability to macro factors.

"We screen for Buy-rated stocks that have underperformed the S&P 500 year-to-date, offer higher free cash flow to enterprise value vs. sector peers, and stocks that fail to exhibit statistically strong relationships with rates and are labor-light relative to sector peers," Subramanian said.

That screen generated a number of stocks investors should consider buying across sectors that include information technology, consumer discretionary, healthcare and industrials. Some of the bigger stocks that fit the bill include Broadcom, Cisco Systems, Lowe's Companies, Pfizer, and Monster Beverage, among others, according to the note.

"Tepid earnings growth coupled with the end of free money indicate flattish returns through 2023," Subramanian said, adding that the Fed's dual mandate doesn't mean it has to support the S&P 500, especially with inflation at multi-decade highs. Therefore, investors should not count on the Fed bailing out the stock market.