Many investors are now seeking out high-quality stocks instead of flash-in-the-pan companies, and banks such as Goldman Sachs and Wells Fargo are encouraging the strategy in the 2024 forecasts, reports an article in The Wall Street Journal. High-quality stocks generally do better when growth slows down—which is predicted to happen this year—because they are protected by their solid balance sheets, a low amount of debt and a high amount of cash reserves. Well-known companies that fit the profile range from reliable performers like Coca-Cola or Johnson & Johnson as well as high-profile companies like Nvidia and Microsoft.

Thanks to their steady performance, quality stocks are pricier than most other stocks, so if there is a big rally, investors may miss out on gains. But to investors who are worried about weathering volatility in the future, those higher prices may be worth it, offering a softer place to land if the market turns. While the S&P 500 is up 0.3% two weeks into the new year, earnings reports are due to start trickling in from Goldman Sachs, J.B. Hunt Transport Services, and energy company SLB, among others, giving investors a chance to gauge how strong the economy is. That data may prompt some portfolio shuffling to include more quality stocks as a further cushioning. Indeed, the iShares MSCI USA Quality Factor ETF gained 29% last year, compared to the S&P 500’s 24% gain, the article notes.

In a paper from AQR Capital Management a decade ago, the authors found that even with the higher price tag, choosing quality stocks and betting against lower-quality companies could bring investors significant returns both in the U.S. and abroad. Allen T. Bond of Jensen told The Journal that he looks for companies that have both a solid performance record and long-term growth opportunities. Some of last year’s darlings like the Magnificent Seven fit that bill and make up the largest holdings in the iShares ETF. But Bond cautions that in order to maintain a quality-heavy portfolio, investors need to take a systematic approach and stick to it even when a rally might leave them behind, while other analysts believe that investors should use quality stocks to supplement their portfolio, sticking to funds that use many different investing factors, the article concludes.