The market is full of unprofitable companies with overvalued valuations, and investors need to be more selective in picking stocks right now, one analyst told CNBC. David Trainer, chief executive of investment research firm New Constructs, said last week that market participants should retreat to stocks with strong fundamentals, and choose companies that are good cash generators. “We don’t think this is a good market for being in a bad risk situation, looking at unprofitable companies with expensive valuations. And even though a lot of these types of very expensive growth stocks are seeing a big drop, we think there’s a lot to do,” Trainer told Squawk Box. Asia” on CNBC on July 19, “It’s time to step back into those strong companies, those stocks with reasonable and cheap valuations.” Growth stocks, which include big tech companies, have fallen this year. Although the Nasdaq rebounded last week, the It’s still down 24% year-to-date.The benchmark has a price-earnings ratio of about 28 times earnings, while the S&P 500 trades about 18 times earnings, according to FactSet.3 Cheap Stocks, a coach “generators” Cash,” he named three stocks he says represent good risk and reward. “The free cash flow generation is here and valuations are cheap.” One of them is IT company Cisco. “Its current valuation is for 0% earnings growth while earnings are increasing,” Trainer told CNBC. The company clearly.” He added that Cisco Well positioned in its space, it will “significantly increase profits” on the back of the “indisputable” long-term trends of the Internet and basic technology infrastructure. He also chose the automaker Ford, calling it the “opposite of Tesla.” “A great cash generator, premium distribution and service platform, proven scalable business model, and proven innovator with its successful electric vehicles,” Trainer said of the 119-year-old company. Used car retailer CarMax also makes Trainer’s List, which he describes as having an excellent distribution model. ‘Better than index funds’ Trainer said investing in the right individual stocks works better than buying index funds at the moment. This goes against traditional investment advice that says index funds, which track indexes, promise more diversification and lower risk than buying individual stocks. “We think these are better than index funds because…the big index funds like the S&P 500 and Russell [2000]contact [3000], they’re taking a lot of risk because they’re so overburdened with some of these big tech stocks that we think they’re really going to continue to crash, and it’s safe to be in one stock… and it can be much safer than one example of that kind,” Trainer told CNBC. Of the stock is JPMorgan, which it says is a “huge cash flow source” and safe to hold long-term. One of the best places if you want to really protect your money and see long-term returns. Trainer concluded:
The analyst chooses stocks to buy with good cash flow and cheap valuations