Three top-notch stocks to own come rain or shine

Forget about growth, says professional investor Ilan Chaitowitz, focus on the underlying quality of the businesses. Here, he picks three of his favourite high quality stocks at attractive valuations.

Each week, a professional investor tells us where he'd put his money. This week: Ilan Chaitowitz of the Nomura Global High Conviction Fund picks three favourites.

Over the last five years classic value investors have had a torrid time. The MSCI World Value Index has underperformed its growth equivalent by 4% per year. Conventional wisdom has tied this trend to ever-lower long-term interest rates, which have kept the weakest businesses solvent and thus stopped the traditional capital cycle from buoying the strongest. This has weighed on returns in capital-intensive industries, which are where classic value stocks tend to be found. Meanwhile, major tech firms such as Amazon and Netflix seem capable of strong growth regardless of the economic backdrop.

So where should investors place their bets now? Rather than agonise over the choice between the two strategies at a time when the macroeconomic outlook is unusually unpredictable, investors can take an agnostic view of growth and focus on the underlying quality of the businesses. High-quality companies do something hard to emulate consistently well. They are unlikely to suffer irreversible declines in profitability and can typically sustain their returns for longer than the market appreciates. We only buy these world-beaters when they trade at attractive valuations.

A hot heating stock

AO Smith (NYSE: AOS)

A defensive retailer

Ross Stores (Nasdaq: ROST)

Top-quality quality-control

Waters (NYSE: WAT)

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