As the earnings season tapers off, savvy investors are scanning the horizon for stocks that still hold untapped potential. UBS recently spotlighted several standout names that have not only outperformed the market recently but also exhibit strong underlying fundamentals—especially in terms of cash flow return on investment (CFROI) momentum. This combination of price strength and improving cash flow metrics signals potential for further gains, a nuance many investors might overlook amid the post-earnings noise.
Why This Matters Now: The Fed’s Subtle Shift
Stocks rallied sharply after Federal Reserve Chair Jerome Powell’s remarks at Jackson Hole hinted at a possible pivot in monetary policy. This subtle shift could mark the beginning of a more accommodative stance, potentially fueling further equity gains. Yet, not all stocks will benefit equally. UBS’s analysis filters for those with both recent price outperformance (over 5% relative to the market in the past 13 weeks) and positive CFROI revisions, offering a refined watchlist for investors hunting quality growth amid changing macro conditions.
Sector Leaders: Financials, Industrials, and Tech Take the Helm
UBS identified financials as the top sector with 22% representation, followed by industrials at 20%, and information technology at 16%. This sector distribution is telling. Financials often thrive when interest rate environments stabilize or improve, while industrials and tech benefit from ongoing innovation and capital investment cycles. For investors, this suggests a strategic tilt towards sectors that combine value and growth characteristics in today’s market.
Spotlight Stocks: Beyond the Usual Suspects
Broadcom (AVGO):
Broadcom has been a powerhouse, soaring nearly 28% over the last three months and 35% over six months, dwarfing the S&P 500’s 11% and 7% gains respectively. UBS notes a 25.4% price return relative to the market in the last quarter, backed by strong CFROI momentum. Wall Street consensus is overwhelmingly bullish, with 41 out of 43 analysts rating it a buy or strong buy. Piper Sandler’s $315 price target implies about 7% upside from recent levels. Given Broadcom’s critical role in semiconductor supply chains and its expanding footprint in software, this stock is a prime candidate for investors seeking both growth and resilience.
AstraZeneca (AZN):
The Anglo-Swedish biotech giant has outpaced the S&P 500 this year with a 23% gain versus 10%, and its recent 15% surge over the past month outstrips European pharma peers. UBS highlights a 6.8% price return relative to the market in the last 13 weeks, with a consensus price target implying nearly 25% upside. AstraZeneca’s robust pipeline and strategic focus on oncology and immunology position it well to capitalize on long-term healthcare trends. For investors, this signals an opportunity to gain exposure to innovative biopharma with strong momentum and analyst backing.
PepsiCo (PEP):
Despite a flat year-to-date performance, PepsiCo has rallied 15% in the past three months, outperforming the broader market with a 5.4% price return relative to the market. This resilience in consumer staples amid market volatility underscores the stock’s defensive qualities and steady cash flow generation. PepsiCo’s diversified portfolio and pricing power make it a reliable choice for investors seeking stability with modest growth potential.
What Extreme Investor Network Is Advising Now
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Focus on CFROI Momentum: Traditional metrics like price momentum are important, but UBS’s emphasis on cash flow return on investment revisions is a game-changer. CFROI captures a company’s ability to generate cash relative to its invested capital, a critical indicator of sustainable profitability. Investors and advisors should integrate CFROI trends into their screening process to identify stocks with both price and fundamental momentum.
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Sector Rotation Strategy: The prominence of financials and industrials in UBS’s list suggests a tactical sector rotation opportunity. As the Fed signals a potential policy shift, these sectors could benefit from stabilizing interest rates and renewed capital spending. Investors might consider overweighting these sectors while maintaining exposure to tech for growth.
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Look Beyond US Borders: AstraZeneca’s strong performance highlights the value of global diversification. With innovative companies outside the US showing robust momentum and analyst optimism, investors should broaden their horizons to include international leaders in biotech and pharmaceuticals.
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Balance Growth and Stability: Stocks like PepsiCo demonstrate the importance of balancing growth with defensive qualities. In a market environment still prone to volatility, combining high-momentum growth stocks with stable, cash-generative companies can optimize risk-adjusted returns.
What’s Next?
With earnings season fading and the Fed’s narrative evolving, the market is entering a phase where discerning investors must dig deeper into fundamentals rather than chasing headline rallies. UBS’s approach offers a blueprint: prioritize stocks showing both price strength and improving cash flow returns.
Looking ahead, keep an eye on how companies manage capital allocation amid potential policy shifts—those that reinvest efficiently or return capital to shareholders wisely will likely outperform. Additionally, monitor geopolitical and supply chain developments, particularly in tech and pharma, as these could create new catalysts or risks.
Final Thought
At Extreme Investor Network, we believe the future belongs to investors who combine quantitative rigor with qualitative insight. UBS’s findings provide a valuable starting point, but the real edge comes from integrating these signals into a broader, dynamic investment strategy tailored to evolving market conditions.
Sources:
- UBS Analyst Note, August 2025
- Piper Sandler Research, August 2025
- LSEG Consensus Data, 2025
By adopting this multi-dimensional approach now, investors can position themselves not just to survive but to thrive in the market’s next chapter.
Source: Buy these outperforming stocks with room to run, says UBS