15 Liquidity-Sensitive Stocks to Buy When Markets Recover
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- Mark Hulbert identified 15 stocks most sensitive to changes in market liquidity as the best candidates to buy when the market recovers, applying a 2003 academic methodology to Russell 3000 stocks
- A 2003 study titled "Liquidity Risk and Expected Stock Returns" found that the most liquidity-sensitive stocks outperform the least sensitive ones by 7.5% annually on average, because investors demand extra return to compensate for liquidity-event risk
- The 15 stocks from Hulbert's August 2024 column have since beaten the S&P 500 by 8.8 annualized percentage points (25% annualized versus 16.2% for the S&P 500), validating the approach in real time
- The 10 stocks from his March 2020 column outperformed the S&P 500 by 6.7 annualized percentage points (27.4% versus 20%), and both prior lists' margins of outperformance closely match the 2003 study's 7.5% long-term average
- The updated list was narrowed to stocks also recommended by at least two of the investment newsletters monitored by Hulbert's performance-auditing firm, and is ordered by descending liquidity sensitivity
- The 15-stock watchlist spans Nvidia, Adobe, and Skyworks Solutions in tech; Morgan Stanley, Charles Schwab, Truist Financial, U.S. Bancorp, and Bank of New York Mellon in financials; Bristol Myers Squibb, CVS Health, and Amgen in healthcare; plus Comcast, Target, Kinsale Capital, and Simon Property Group
Why it matters: The 7.5% annual outperformance edge documented in the 2003 study has been validated in Hulbert's own backtests, with prior stock lists from 2020 and 2024 beating the S&P 500 by 6.7 and 8.8 annualized percentage points respectively, giving investors a research-backed watchlist for the bull market's next leg up.
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