These stocks are the right plays for the next stage of the economy, Wolfe Research says

Published Tue, Aug 3 20213:24 PM EDTUpdated Tue, Aug 3 20214:12 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

As the initial burst of post-pandemic growth appears to slow, investors should take a look at how easily companies can generate extra cash, according to Wolfe Research. The investment firm's analysts said Monday in a note to clients that stock pickers should take a look at a key cash flow metric to find winners in the current environment. The measure identified by Wolfe is incremental free cash flow return on equity — or "ICE" — which measures the extra cash flow return over a two-year period from additional investments by a company. "Looking out from now to year end, our sense is that investor focus is going to shift back to the market cycle, which is most often (in a non-pandemic world) the main intermediate-term driver of our overall stock market outlook, sector recommendations, and thematic views. As such, we believe that investors should consider buying 'High ICE' companies," the Wolfe note said. This group tends to perform well during the middle of the market cycle and is related to high-quality stock strategies, Wolfe said. Wolfe found stocks that fit this profile across several industries, with both growth tech companies and more defensive health care names represented. Two notable tech stocks on the list are DocuSign and cybersecurity firm Palo Alto Networks . DocuSign was one of the popular work-from-home trades in 2020, and the stock has outperformed this year as well, rising more than 30%. Palo Alto, meanwhile, has gained 14% over the past three months as high-profile cyber attacks continue to hit U.S. companies. Consumer apparel and cooler brand Yeti also made the list. The stock has been a big winner year to date, rising roughly 45%, and has buy or overweight ratings from 72% of analysts, according to FactSet. The health care stocks that made the cut include Dow component UnitedHealth and Anthem . The industry has been a winner for investors over the past two months, with the Health Care Select Sector SPDR Fund rising more than 9%. —CNBC's Michael Bloom contributed to this report.

The Yeti logo is seen on a cooler for sale at the company's flagship store in Austin, Texas.

Sergio Flores | Bloomberg | Getty Images

As the initial burst of post-pandemic growth appears to slow, investors should take a look at how easily companies can generate extra cash, according to Wolfe Research.