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Traders Buy 'Quality,' Reject Rapid-Fire Roots

With it strong earnings report Tuesday and a three percent dividend yield, Coca-Cola signifies the kind of stock that even rapid-fire traders are turning to for refuge in this volatile market.

Pete Najarian, co-founder of OptionMonster.com, bobbed and weaved throughout the market’s monster run from the March 2009 lows, racking up big wins by finding where the momentum was building and holding hot positions for a week, even just a day. But now he counts stocks like Pepsico, which reports earnings Thursday, and Johnson & Johnson, which just posted yet another year of annual profit growth, as part of his core holdings.

“For both names you get solid performance,” said Najarian, also a ‘Fast Money’ trader. “They don’t have earth shattering numbers, but growth with a defined strategy and the discipline to execute.”

Investment firm ING ran the numbers, breaking into quintiles the companies in the Russell 1000 Index with the worst balance sheets (highest debt-to-capital ratios) to those with the best (lowest debt-to-capital rations). The outperformance of the first quintile, compiling the most highly leveraged, has steadily started to diminish. Setting up a turn to outperformance for the names with stronger balance sheets.

“There will be companies with stretched balance sheets that can generate growth, but the combination of strength and differentially higher growth could prove relevant for portfolio positioning for a considerable time period,” wrote Martin Jansen, ING Senior Portfolio Manager, in a newsletter to clients this week. “While shorter counter-trends may prevail sporadically, a long walk up ‘Quality Street’ may prove to be more durably rewarding.”

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