In a note to clients, Trivariate Research laid out a contrarian investment strategy, suggesting investors rotate out of high-flying artificial intelligence stocks and into "old economy" stalwarts with low correlation to the tech sector and recent positive momentum.
"Sometimes, you’re smart to zig when everybody else zags," Adam Parker of Trivariate Research said, highlighting the expensive valuations in the tech-heavy Nasdaq Composite, which trades at 25.5 times forward earnings. The firm's strategy is designed to avoid companies that have struggled to produce earnings to the market's expectations.
The screen identifies companies with a correlation of 0.2 or less to Trivariate's AI chip basket and a minimum 10% gain over the past six months. Besides industrial gas producer Linde, the list of nine companies includes Eli Lilly, Johnson & Johnson, Pfizer, Walmart, Coca-Cola, Costco, Exxon Mobil, and Verizon Communications.
Linde, with a market capitalization of over $230 billion, is projected to grow earnings per share by 9% annually over the next two years, with sales growing at a 5% clip. The company's forward price-to-earnings ratio of just over 26 times sits in the middle of its 2026 range. JPMorgan recently reinforced a bullish view on the stock, raising its price target to $530 from $525 and maintaining an Overweight rating after Linde's first-quarter earnings beat expectations.
The investment thesis for Linde is supported by its stable business model, which includes "take or pay" contracts that ensure a steady revenue stream. The company serves a diverse customer base across manufacturing, metals, food, and healthcare, which helps to smooth out sales fluctuations. Linde's ability to implement price increases to offset rising energy costs further strengthens its position.
While the Nasdaq Composite has surged 22% since its March low, Trivariate's strategy suggests that the most crowded trades are also the most vulnerable. By focusing on established companies with strong fundamentals and less exposure to the AI frenzy, investors may find a more stable path to growth. The performance of stocks like Linde could offer a compelling alternative if the tech rally falters.
This article is for informational purposes only and does not constitute investment advice.
