As the market staged massive, volatile price swings Tuesday, Feb. 6, investors have begun wondering what the best stock picks are should a selloff stick around.
According to a note from RBC Capital Markets, the smartest picks are decidedly tech-skewed.
The two most common questions that RBC analysts get in the event of a downturn are what could happen to the firm's coverage universe given a moderation in growth or a correction in the stock market, and what stocks should investors own in a pullback.
"Simplistically, we think most of stocks aren't factoring in a correction scenario based on current valuation -- hence the downside should we see a recession-type correction could be rather severe (although we aren't calling for this)," RBC wrote.
In the Great Recession from 2008 to 2009, Apple, Broadcom, International Business Machines Corp. (IBM) and HP Inc. (HPQ) had "impressive" margin protection, analysts said, although they might not all enjoy the same insulation in a growth moderation as they did in a recession given secular changes to the IT landscape.
From a peak-to-trough standpoint, RBC wrote, value IT hardware companies performed best with a peak-to-trough of about 50% to 60%. The companies in that group also reported "much narrower" multiple ranges when compared to semiconductor or electronic manufacturing services firms.
The "more severe" margin degradation headwinds in RBC's analysis of a hypothetical 2018 correction were at semi-cap companies that are more cyclical -- Qualcomm Inc. (QCOM) , Maxim Integrated Products Inc. (MXIM) and TE Connectivity Ltd. (TEL) .
RBC added that dividend yields offer good support for companies. The best names in the high-yield group are Seagate Technology PLC (STX) at about a 5% dividend yield, IBM with about 4%, Qualcomm with about 3.5%, Maxim with about 2.8%, Intel Corp. (INTC) with about 2.6%, HP with about 2.5%, Texas Instruments Inc. (TXN) with about 2.3% and Western Digital Corp. (WDC) with about a 2.3% yield.