Bank of America says investors searching for opportunities in a market still hovering near record highs should focus on quality companies. In a Sept. 9 note, the bank’s strategist Jared Woodard said stocks with high free cash flow have been the best-performing factor over the past 30 years.
According to Woodard, free-cash-flow yield is the clearest measure of quality because it is harder to manipulate and easier to compare across companies. Firms that consistently generate cash tend to win investor support because they have room to invest for growth, reduce debt and return capital to shareholders when needed.
At the same time, free-cash-flow yield in the S&P 500 is now at record lows, Bank of America said. Woodard linked that trend to heavy spending and rising debt among technology companies trying to defend their artificial intelligence market share. He estimated that Amazon, Alphabet, Meta Platforms, Microsoft and Oracle together are on track to post negative free cash flow of $141 billion over the next 12 months. In his view, investors should “buy what is scarce,” as high-FCF stocks are up 43% year to date and are on pace for a record performance.
Bank of America identified several non-AI companies it rates buy that also generate strong free cash flow. For income-oriented investors, the bank highlighted dividend payers that can reward shareholders while they wait for a weaker stock to recover.
Allstate, Cigna and Hasbro among the picks
Among the dividend names, Allstate offers the highest free-cash-flow yield at 18%. The stock yields about 1.8% and is up roughly 17% so far this year. In August, the insurer reported second-quarter results well above expectations, with adjusted earnings of $8.99 per share compared with the $6.06 expected by analysts surveyed by FactSet. Even though Bank of America keeps a buy rating on the stock, the average analyst view tracked by FactSet is hold. Consensus price targets imply upside of more than 12% from current levels.
Cigna also made Bank of America’s list. FactSet data show Wall Street’s average rating on the health insurer is overweight, while consensus targets point to 24% upside. In July, the company posted a second-quarter earnings and revenue beat and raised its full-year adjusted earnings guidance to $30.45 per share from $30.35. The updated outlook, however, was in line with analysts’ expectations. The stock is down slightly for the year and carries a 2.3% dividend yield.
Hasbro was the third name highlighted by the bank. According to FactSet, the stock has an average buy rating and 25% upside to the average price target. The toy maker reported second-quarter adjusted earnings and revenue above expectations in July. Growth was driven by its “Magic: The Gathering” trading card game, whose quarterly revenue topped $500 million for the first time in the product’s more than 30-year history, the company said.
Speaking to CNBC after the earnings report, CEO Chris Cocks said the toy category is broadly expanding. Consumers are going out, buying toys and games, and continuing to play and collect across a wide range of segments, he said. Hasbro offers a 3.2% dividend yield and has gained around 7% so far in 2026.
