What to watch ‘YARP’ replaces ‘GARP’ as stock call

There was a time when stock market strategists advised investors to seek out “GARP” stocks — or names that provided growth at a reasonable price.

But in a world awash in negative interest rates and investment income at a premium, Savita Subramanian, equity and quantitative strategist at Bank of America Lynch, is advising clients to seek out “YARP” stocks — or equities that offer “yield at a reasonable price.”

“Given lower-for-longer rates and (global) growth (concerns), and with a record proportion of global bond yields in negative territory, stocks with high dividend yields can continue to work in the second half,” Subramanian said in a report. “But we prefer ‘YARP’ — yield at a reasonable price.”

In a teleconference Wednesday, Subramanian expounded on her preference for quality stocks that pay out plump dividends but are not wildly overvalued.

She noted that roughly 60% of companies in the Standard & Poor’s 500 stock index now have a bigger dividend yield than the 10-year Treasury note, which yields 1.47%. The S&P 500 notched its third consecutive record Wednesday.

“The S&P 500 could continue to move higher,” she says, “because the yield and income growth are very competitive in a low-yield environment.”

Subramanian’s top sector picks: telecom stocks, which trade at a cheaper price to earnings multiple than other so-called bond proxy sectors, such as utilities and consumer staples.