Piper Sandler shares 9 stocks and 5 ETFs to tap into a thriving trade insulated from AI jitters

Wall Street is high on quality stocks as the AI trade wobbles, with firms like Morgan Stanley and Goldman Sachs recently touting the factor to clients.

Piper Sandler is joining the party, publishing a guide to the quality trade for clients last week in which the firm said that quality stocks are poised for further upside.

“We believe we are in a backdrop today that is conducive to quality themes outperforming,” Michael Kantrowitz, the bank’s chief investment strategist and head of portfolio strategy, wrote in the note.

The bank has its own definition of quality. It emphasizes high free cash flow yield, high return on equity, return on invested capital, return on assets, and high interest coverage. Those terms are a mouthful, but they’re essentially ways of measuring how financially healthy and profitable a company is.

Low debt levels and high dividends — other common tenets of the quality factor — are less important to Piper Sandler.

Quality stocks tend to perform best as the market rolls over from a peak, and the firm said that appears to be part of the cycle that stocks are in.

It said the macro outlook for the broader market is worsening heading into 2027, which should push investors into higher-quality stocks as they seek out more stable companies to lower their portfolio risk.

For example, both short-term and long-term interest rates are rising heading into next year, which has historically been bad for stock performance. Oil prices also remain elevated, the appetite for fiscal spending is low, and housing activity is decelerating.

An advantage of playing the quality factor, as opposed to having sector-specific exposure, is that quality reaches into all corners of the market, Kantrowitz said.

The bank highlighted a couple of ways to gain exposure to the quality theme. The first is through individual stocks via its Macro Select screener.

It screens for return on equity, earnings momentum, free cash flow yield, and a lack of “red flags” in its sell model.

Below, are nine stocks with market capitalizations above $100 billion that are among the top names in the bank’s Macro Select model.

Investors can also gain exposure to the quality stocks through exchange-traded funds, or ETFs.

Piper Sandler screened 20 quality-factor ETFs and ranked them based on their profitability, valuation levels, and earnigns momentum.

Below, we’ve listed the five highest-ranking funds on the list across those three themes.