Bank of America is sifting through the rubble and likes these stable stocks on the dip

Published Tue, Jan 25 20222:35 PM ESTUpdated Tue, Jan 25 20224:03 PM EST

It could be time to buy the dip on some strong and stable stocks that have been punished this year, according to Bank of America. The firm said it is "sifting through the rubble" to find clients some stocks that should fair well after their major pullbacks. Equities are off to a rocky start to 2022 as investors fear inflation, a Federal Reserve pivot that could lead to higher rates and supply chain constraints. The S & P 500 is down more than 8.5% this year, its weakest start since 2008, and the Nasdaq Composite's drop into correction territory marks the index's worst January since 1972, according to Bank of America. The technology-focused index is down more than 13% this year. More than 60% of S & P 500 stocks are more than 10% below their 52-week highs, and 24% of the 500-stock average is in a relative bear market, 20% off their high. Of the 196 stocks lagging the S & P 500 this year, Bank of America created a list of names with strong fundamentals and less macro vulnerability. "We screen for Buy-rated stocks that have underperformed the S & P 500 [year-to-date], offer higher Free Cash Flow to Enterprise Value (FCF/EV) vs. sector peers, and stocks that fail to exhibit statistically strong relationships with rates and are labor-light relative to sector peers," Bank of America equity and quant strategist Savita Subramanian told clients. Take a look at Bank of America's list: Applied Materials and Broadcom are down 15% and 20%, respectively, in 2022, but Bank of America said they are good "buy-the-dip candidates." Home improvement stocks Home Depot and Lowe's also earned spots on the list. Home Depot is down nearly 14% and Lowe's is off about 11% in 2022. CarMax is down more than 16% this year, but could be poised for a turnaround, while D. R. Horton is the biggest loser in the bunch, down nearly 20%. Monster Beverage , which is down 10% this year, Penn National Gaming , which is off by nearly 17%, and Pfizer , down 13%, are also on the "buy-rated laggards" list. Lam Research is also on the list. — with reporting from CNBC's Michael Bloom.

A shopper departs after visiting a Lowe's hardware store in Philadelphia, Pennsylvania, November 4, 2020.

Mark Makela | Reuters

It could be time to buy the dip on some strong and stable stocks that have been punished this year, according to Bank of America.