Markets Have Been Anything But Calm. Jefferies Thinks These Low-Stress Stocks Can Still Deliver Returns.

After months of an AI-driven stock market rally, some Wall Street strategists are encouraging investors to look beyond the biggest technology winners and focus instead on companies with strong fundamentals as concerns over valuations and rising spending continue to grow.

Jefferies is recommending a portfolio of what it calls “quality, low-stress” stocks for the summer, arguing that market volatility has increased as investors debate whether massive investments in artificial intelligence will ultimately generate sufficient returns. The investment bank said companies with solid balance sheets, durable cash flow and relatively modest market momentum could offer a steadier alternative if enthusiasm surrounding AI stocks begins to cool, CNBC reported Tuesday.

The recommendation comes after momentum investing has significantly outperformed the broader market. Jefferies noted that the S&P 500 Momentum Index has beaten the wider market by more than 70% since 2024, approaching levels last seen during the dot-com boom of the late 1990s. The firm said AI-related companies are now carrying much of that momentum, increasing the risk of sharp reversals if investor sentiment changes.

Desh Peramunetilleke, Jefferies’ head of quantitative strategy, said investors are weighing several questions surrounding the AI trade, including whether technology companies are building excess capacity, whether hyperscale cloud providers will generate adequate returns on an estimated $700 billion in AI-related capital spending, and whether rising token costs could weigh on profitability.

While Jefferies continues to view artificial intelligence as a long-term investment theme, the firm said those concerns could trigger periods of volatility that favor companies with stronger fundamentals rather than stocks driven primarily by momentum.

To identify candidates, Jefferies screened for companies with market capitalizations above $10 billion, high quality scores, long-term free cash flow yields exceeding 3%, limited momentum and forward price-to-earnings ratios below 20 times expected earnings over the next year.

The resulting list includes AbbVie, American Express, Home Depot, Lowe’s, McDonald’s, Netflix, PepsiCo, Procter & Gamble, S&P Global and Stryker.

Among the companies highlighted, Jefferies gave AbbVie one of its highest quality scores. The investment bank expects the pharmaceutical company to deliver compound annual earnings growth approaching 28% between 2026 and 2027 while generating a free cash flow yield of about 5.2%.

AbbVie recently strengthened its immunology business by agreeing to acquire Apogee Therapeutics in a deal valued at approximately $10.9 billion, its largest acquisition in more than five years. The company also reported $15 billion in first-quarter worldwide revenue, including $7.3 billion from its immunology portfolio. Shares have gained roughly 37% over the past year, while the company is scheduled to report second-quarter earnings on July 31, the news outlet said.

Jefferies also highlighted Netflix, citing the streaming company’s approximately $320 billion market value and 3.6% free cash flow yield. The company forecast second-quarter revenue growth of 13%, although management previously cautioned that content spending would be concentrated in the first half of the year because of its release schedule.

Netflix shares declined after the company issued second-quarter guidance that fell short of Wall Street expectations while maintaining its full-year outlook. The company is expected to report quarterly earnings on July 16.

Jefferies’ recommendations come as investors continue debating the sustainability of the market’s AI-led advance. Earlier this week, CNBC reported that businesses are increasingly adopting lower-cost AI models from Chinese developers such as DeepSeek and Z.ai as companies seek to manage growing AI operating expenses. The report said enterprises are becoming more selective about where they deploy premium AI models from companies such as OpenAI and Anthropic, reflecting broader concerns about rising infrastructure costs.

Those questions have also become a focus for investors. Reuters recently reported that U.S. government agencies are expanding their use of advanced AI models for cybersecurity work, underscoring continued confidence in frontier AI systems even as companies face increasing scrutiny over spending, commercialization and long-term returns.

Market participants are also preparing for another round of corporate earnings, with several large companies expected to provide updated guidance on AI-related investment, capital expenditures and cash flow in the coming weeks. Those results are likely to be closely watched as investors assess whether elevated valuations for AI-linked companies remain supported by business performance.

Jefferies argues that investors looking for a steadier approach may find opportunities among companies with established earnings, healthy balance sheets and lower market momentum while broader questions about AI spending continue to play out.