A number of Wall Street strategists expect to see the U.S. stock market higher at year end, but one analyst argues that the market will be flat and a good strategy, he says, is to pick stocks that have good earnings growth but are under-appreciated.
Brian Belski, chief investment strategist at BMO, is concerned about the near-term performance of the equity market. In a recent research note, Belski argues that recent trends in some important macro indicators suggest that the positive market momentum is getting a bit ahead of itself.
(Read More: Goldman Sees 20% S&P Gain in 3 Years)
For instance, the S&P 500 has been tracking trends within jobless claims and consumer confidence fairly well over the past several years. However, both have weakened in recent months, while the market continued to move higher.
Belski's market outlook suggests a flat or range-bound market for the remainder of the year. So he examined what stocks typically benefit in this sort of environment. He looked at all periods in the past 20 years when the S&P 500 performance was flat for six months or more.
He identified 14 such periods as well as a common theme among stocks that usually perform well in such an environment. The stocks tend to exhibit growth at a reasonable price or - GARP - properties, with forward P/Es below the market and forward earnings growth above the market.
Belski then screened for stocks that exhibit such characteristics right now. Here is what he found: Blackstone, International Paper,Oshkosh, Transocean, International Game Technology, Rock-Tenn, Thor Industries, Zions Bancorporation, EPL Oil & Gas, and Noble Corp.
(Read More: Cramer: This 'Tipping Point' Great for Stocks)