So here’s the deal: Bob Doll, who used to run stock strategy at BlackRock (yeah, that BlackRock with $10 trillion under management), thinks we’re living in what he calls a “high-risk bull market.” Translation? Stocks are still going up, but it’s like riding a bull that’s had way too much Red Bull.
Doll’s not being dramatic here. He’s basically saying the market is in that sweet spot where you have to stay in the game because things are still climbing, but you better buckle up because this ride could get bumpy real quick.
What’s got him worried? The usual suspects: stocks are expensive (shocking, I know), everyone’s acting like day traders on TikTok, and there are two big things that could send everything tumbling faster than you can say “diamond hands.”
The Two Things That Could Ruin the Party
First up: earnings disappointments. We got a taste of this when Microsoft dropped 12% after investors weren’t thrilled with how much cash they’re burning on AI projects. Apparently, “trust us, AI will pay off eventually” isn’t the compelling investment thesis it used to be.
Second: inflation deciding to stick around like that friend who crashes on your couch and never leaves. If inflation rounds up to 3% instead of dropping to 2%, the Fed might have to get all hawkish again, and nobody wants that party pooper showing up.
Doll’s Secret Sauce: The ROE Strategy
Here’s where it gets interesting. Instead of chasing the latest meme stock or whatever Elon tweeted about, Doll has a refreshingly boring strategy: find companies with high return on equity (ROE) that aren’t ridiculously expensive.
“If I can have above average return on equity and below average price of free cash flow, I think I have a recipe to do OK in a crazy environment,” he says. It’s like finding a restaurant that serves amazing food but hasn’t figured out they should be charging Manhattan prices yet.
His Actual Stock Picks (The Good Stuff)
Doll’s betting big on the major banks: Bank of America, JPMorgan, Wells Fargo, and Citi. His logic? These guys have the best balance sheets, they’re cheaper than other financial stocks, and they’re basically money-printing machines when times are good.
Sure, all four are down this year (because apparently even banks can’t catch a break), but Citi has been the star performer over the past year with a 42% return. Not too shabby for a “boring” bank stock.
Outside of banking, he’s also bullish on Gilead Sciences, the biopharma company that’s generating $1 billion in free cash flow. The stock is up 14% this year and 46% over the past year, proving that sometimes the best investments are the ones that don’t require a PhD in rocket science to understand.
The Bottom Line
Doll’s approach is refreshingly simple in a world obsessed with complexity: find profitable companies that aren’t overpriced, focus on businesses that generate real cash, and don’t get caught up in the hype. It’s not sexy, but neither is losing money when the music stops.
In a market where everyone’s looking for the next big thing, sometimes the smartest play is just finding companies that are really, really good at making money. Revolutionary? Hardly. Effective? Ask BlackRock’s track record.