Barron's Streetwise - The Quality Signal That Beats the Market. Plus, Can Metals Stay Hot?

Episode Date: January 2, 2026

BofA’s Jared Woodard shares a powerful stock-picking metric. And Jack sizes up gold, silver, and copper. Learn more about your ad choices. Visit megaphone.fm/adchoices

Here's why this has been so attractive to so many investors in recent years. Historically, investing in a basket of stocks that score well on this measure has performed about 15, 16 percent total returns per year since the early 90s. It's a pretty shocking margin. It's massive. Hello and welcome to the Barron Streetwise podcast. I'm Jack Howe. And the voice you just heard, that's Jared Woodard.

He's the head of the Research Investment Committee at B of A Securities. He's talking here about investing in quality stocks. Now it might be a great time to invest in quality stocks. We'll talk about why. The problem is, Wall Street can't seem to agree on a definition of quality. There are a lot of different funds out there that call themselves quality funds, and their methodologies differ widely. Jared has studied the matter and found what he thinks is the best way to search for quality stocks.

I'll give you a hint. It rhymes with shmishmashmo. It's free cash flow. We'll talk about that. And first we'll say a few words about rip-roaring gains for metals in 2025. And we'll look at where we could be headed in 2006. Listening in is our audio producer, Alexis Moore. Hi, Lexus.

Hi, Jack. Did you know that silver gained 140% in 2025? That's not a year. year-end number. That was a couple of days before Christmas, so it might have changed a little bit by year end. But I'm looking at a ranking here. This comes from Ed Jordeni, the economist. He's been on the podcast before. Silver up 140%, platinum, 133%, palladium, 95%, gold, 69%. Gold's actually been running for a while now. It's gotten so high that if you look at a 20-year return history, of gold versus the standard and poor's 500.

Gold is outperformed. I looked at the returns the other day. 791% for gold over the past 20 years. 703% for the S&P 500. That is definitely not normal because the S&P 500 represents companies, and companies are run by smart people who sit around trying to think of ways to make the company more valuable. And gold is just stuff.

It doesn't do any thinking. It just sits there. Over long time periods, gold, and other stuff should track the rate of inflation. I've made the point before that companies turn financing and stuff into profits. That's how they become more valuable. So if financing is kind of like bonds and stuff includes commodities, it's not a coincidence that stocks outperform over the longest time periods. They have to for businesses to be viable.

But this is an unusual period where gold has gone bonkers just. lately and that's pushed its long-term returns higher than the stock market and that's got a lot of people wondering which metals are next and how long can this thing last we talked about gold on this podcast it must have been april of 2025 because i did a cover story on it for barons then the price back then was around $3,400 an ounce it's up around another thousand dollars since then Prices at the beginning of this past week were actually all over the place. Silver on Monday lost 9%. By midday Tuesday, it was up 9%.

Gold lost 4%, then it was up 1%. A lot of volatility, which I guess is to be expected after these humongous gains. It's not just precious metals. Aluminum recently was up 15% in 2025 and tin was up 49%. Does everybody know the difference? Precious metals and base metals, or sometimes they're called industrial metals. precious metals what they have in common is they're pretty rare they're not especially reactive sometimes they're used for jewelry or coins right there in column 11 of the periodic table of elements

you've got gold silver and copper those are sometimes called the coinage metals there are gray areas here i'd call copper more of an industrial or base metal it has so many uses in manufacturing platinum and palladium are considered precious metals even though demand for palladium is dominated by the car industry. It's used in something called a catalytic converter. You know how cars used to emit a lot of smog back in the 70s and now they don't? Catalytic converters are the reason why. Now base metals are common and more reactive than precious metals. Like I said, copper is usually considered a base metal, along with zinc, nickel, and tint. And then you have ones that Wall Street will often categorize as other or special. Uranium is one of those.

Most of the uranium that you find in nature is what's called Uranium 238. But a little bit of it, 0.7%, to be precise, is uranium 235. And those few missing electrons make uranium 235 fissile. And if you can increase the concentration of that uranium to 3% to 5%, you can fuel a nuclear power plant. So uranium is special. That was up, let's see, at one point in late December, that was, It was up 11% in 2025, but it was up 168% over the past five years.

We've talked about why. There's been this artificial intelligence boom and the building of all these new data centers, and there's huge demand for electricity, and so nuclear power is back in fashion. And cobalt is another special metal. That one was recently up 115% in 2025. Cobalt is used mostly for batteries, including those for electric vehicles. Okay, so what makes metal prices run? It could be a lot of things.

There could be demand from a hot economy. There could be supply interruptions. There could be a technology shift. That's kind of what's happened with uranium and cobalt. For precious metals in particular, sudden gains can come from fears of monetary debasement or fears of missing out on gains or both. That's what I think is happening recently.

The U.S. federal debt has reached a dawn. wanting 115% of gross domestic product. That's, let's just say, not where you want to be. The deficit, don't be confused about the difference between the debt and the deficit. The debt is the amount we owe. The deficit is the budget shortfall for that year. It's the amount by which we're going further into the hole. Over time, the deficit gets added to the debt.

So the deficit was $1.8 trillion over the past year. that is larger than the deficit we ran at the most desperate point of the global financial crisis back in 2009. The deficit then was $1.4 trillion, now $1.8 trillion. It's not quite as high as a percentage of the economy, but the point is it's unusual to run deficits this large when there's not some kind of economic emergency going on. And I think that has investors nervous about, for one thing, the value of the dollar. It was recently down 10% in 2025 against a basket of key foreign currencies.

The Federal Reserve has been cutting interest rates, even though inflation remains a little bit above its target. On the bright side, economic growth has been robust. But I think when you put all these factors together, like I say, there are some people who are worried about monetary debasement, and they're buying precious metals. And there are some people eyeing the gains for precious metals, and they're saying, I don't want to miss out. And they're buying two.

And in commodities forecasting, there's a lot of what I'll call metallurgical what-aboutism. Someone will argue, the price of gold is up so much that silver now looks cheap relative to gold. Silver is due for a big run, they'll say, and that's exactly what happened in 2025. It's difficult with metals to come up with some kind of fundamental peg of value of where they should trade. So people will talk about them relative to each other. And there are price targets out there. RBC Capital says gold will hit 4,800 by the end of 2006. The French bank that I can't pronounce, Sociate Generali.

That wasn't close. The Generale, I think, was the car in Dukes-A-Hazard, not the French bank. Anyhow, they save $5,000 for gold by the end of 2006. Ed Yardini, the economist, he sees gold and the S&P 500 following the same trend line. He wrote recently, if the S&P 500 reaches 10,000 by the end of 2029, as we expect, gold should trade at $10,000. That's quite a forecast. I said there's no fundamental peg of value for gold like earnings or dividends.

There is one that comes to mind, which is the cost of mining it. But we're so far removed from that now, it's not much help. RBC estimates that the all-in cost of mining an ounce of gold, By the way, when I say ounce, I mean Troy ounce. And if you want to learn about what the difference is between a Troy ounce and a regular ounce, and if you want to hear a half hour of gold minutia about how a process of elimination on the periodic table takes you to gold as the most likely element for people to use for money overtime, and so on, you can go back and listen to that April episode. But OK, RBC estimates that the cost to mine a Troy ounce of gold in 2025 was 1,0005.

$1,569. That includes everything, and it expects that cost to rise in 2006 to $1,715. But you can do this math in your head if you're paying $1,700 to mine an ounce of something, and if the going rate is $4,600, you're making excellent money. Gold miners are generating stupendous amounts of cash right now. back in 2004 when the price of gold was rising gold mining stocks were not following but in 2025 the mining stock shot higher usually what happens now is that the mining companies are making so much money that they begin blowing it on overpriced takeovers but they're being unusually prudent at the moment they're paying down debt and buying back stock and that leads a number of wall street banks to conclude that the price of gold can rise higher from here you UBS writes, no bull market lasts forever, but in our view, it is too early to call the top. It is, I would say, somewhat bullish on gold. Among the stocks it recommends is barrack mining.

UBS's top pick among metals is copper. If I had to pick one consensus bullish call on Wall Street right now, it's probably copper. It took off later than gold and silver, and there are reasons to think it could have further run. J.P. Morgan calls copper. It likes it for, quote, acute supply disruptions, fragile X-U-S inventories, and renewed Chinese buying. Its top pick is Freeport MacBaron. UBS also likes Freeport, an Anglo-American, and a company called Tech Resources, TECK. UBS's other favorite metals for 2006 are aluminum.

They're like shares of a company called Norsk Hydro, and lithium. That's another battery metal. And there it likes Albemarle. If you don't want to try to pick individual metals or individual stocks and you want to take a scattershot approach, there are, of course, ETFs you can look at. One is called State Street Spider S&P metals and mining. It's diversified, but half of it is in steel and coal.

It's 16% in gold, 9% in aluminum, 5% in silver. If you're looking for something with a little more luster, there is the Invesco DB Precious Metals ETF. The only problem there is the expenses are too high for my tastes, 0.79% a year. The last thing I'll point out on this subject is that crypto is sometimes referred to as digital gold. It ain't acting like digital gold lately. All these metals are shooting higher, but the NASDAQ crypto index that tracks Bitcoin and Ethereum and the smaller crypto coins that no one cares about,

that index was recently down 15% so far in 2025. It's looking more and more like crypto is the speculative trade and metals are the debasement trade. Or maybe the shortage slash hot economy trade. We'll have to see what happens in 2006. And that, I guess, is metals. How was it, Alexis, that Forrest Kump said it, that that's all I have to say about that.

I want to get to quality stocks in our conversation with Jared Woodard. That's next after this quick break. Welcome back. Let's talk about quality stocks. I do not recall any of the big investment banks a year ago putting out a note saying we are incautiously optimistic. It's time to buy hot garbage. But that apparently would have been a pretty good call in 2025. The stock market in general did quite well and UBS put out a note late in 2025 saying that low quality stocks had outperformed high quality stocks by 50 percentage points since March. And it wrote that it's now time to bet on high quality. Quote, the sharp rally in

low quality appears unsustainable amid elevated uncertainty and extreme crowding. And I think there's something comforting and intuitive about the idea of buying quality, almost no matter what you're shopping for. You could be kicking tires on a car lot, could be sniffing melons in the produce aisle. Look for quality. Seems to make sense. And especially now in the stock market, if you're worried about, let's say, runaway artificial intelligence spending, or the rash of companies that we've seen with flaky business models, all those crypto treasury companies where the whole business model is basically buy and hoard crypto and hope it goes higher. If you're worried about that, buy quality. There are only two problems with that approach. The first is there is not widespread agreement

on Wall Street on how to define quality stocks. So there are a lot of different funds with quality in the name that take quite different approaches. And the second problem is that many of these funds hold pricey stocks. The I shares MSCI USA Quality Factor ETF. The ticker there is Qual, Q-U-A-L. That traded recently at 26 times estimated 2025 earnings. That is a touch more expensive than the S&P 500, and the S&P 500 at the moment is pretty darn expensive relative to earnings. So is quality still a good deal if the stocks look expensive? I would say that overwhelmingly the most common measure that I see used to screen for quality stocks in these ETFs is something called return on equity. Basically, picture a fraction with the company's profits on the top

and the net value of the stuff it owns on the bottom. How much profit are you generating using your stuff? That's return on equity. The problem is it doesn't really say anything about how expensive a stock is. Now, return on equity is a little more sophisticated than I'm making it seem here. There's something called DuPont analysis that can tell you why a company's return on equity might be too low and what you can do about it. It was developed more than 100 years ago by an explosive salesman for the DuPont company back when it was largely in the gunpowder business. I'm not going to go into detail about that here.

I covered it recently in a cover story for Barron's. Believe it or not, I ramble as much when I write as when I talk. Some would say more. One more thing I'll say about that Qual ETF, QAL. That's one of the big ones in the industry. It's expensive. It has underperformed the S&P 500s. it's launched in 2013, but also when you look at the top holdings in the ETF, you see Apple, Microsoft,

Nvidia, meta platforms, some of the same giants that dominate the S&P 500. So if you're buying a quality ETF because you own an S&P 500 fund and you're looking to diversify against that, you're worried the S&P 500 might not do that well going forward and you want something on the side that could do better. That particular quality ETF might not look different enough. And with that, I want to get to my conversation with Jared Woodard at B of A Securities. He has a different way to look for quality stocks. At the end of this conversation, I'll be back with an ETF that Jared recommends. And also, I ran my own screen recently for Barron's to try to find some quality

stocks. I'll give you some of those names. Let's get to my conversation with Jared. The irony of looking for quality as an investor is it seems like you can't really be qualitative about it. You have to be quantitative. You have to measure something because you're going to want to run some kind of screen probably to reduce the investment universe down to the stocks that you want to focus on and learn more about. So the question comes up, what are the measures that we should be screening for? And it seems like your research has pointed you toward free cash flow. as an important one. Tell me about that. Well, there's a few different publicly available indexes and benchmarks that different folks

are publishing that have done this work historically. If you look at free cash flow is operating cash flow minus capital expenditures. In plain language, it's the profits in a business subtracting the kinds of big investments that a company has to run over time to keep that business going. But with no other accounting components that can sometimes be a callus for debate. So non-cash charges, amortization, depreciation, what's happening with working capital, is their stock-based compensation. The goal with a free cash flow measure is to take away all of those perhaps more debatable, in some cases, perhaps even manipulable metrics, and focus on what cash is coming to the business, cold, hard cash. I've heard it described as cigar box accounting,

where if you have a mom and pop store and they're putting the money in the cigar box and they're taking the money out of the cigar box, whatever money is left, at the end of the day, that's what they've made. There's no what ifs. There's no yeah buts. It's just the cash coming in and cash going out. That's exactly right. And here's why this has been so attractive to so many investors in recent years. Historically, investing in a basket of stocks that score well on this measure, this free cash flow relative to enterprise value has performed about 15, 16 percent total returns per year since the early 90s. This is about five percentage points a year better than the S&P 500, which is already by itself.

you know, been a pretty good place to invest. It's a pretty shocking margin. It's massive. It's massive. And it's the kind of margin that as an investor, you know, you get a little skeptical over time and you say to yourself, that might have been true historically, not sure how true that's going to be in the future. Let's see. And as I mentioned before, in some cases, the returns in real time have been in line with history, which is a really fascinating result. If you look at other popular factors in the market that everyone knows about momentum and growth and value and lots of measures. Some of those have had periods about performance, but nothing like this magnitude. And so I think it's a really ripe area for research. My colleagues at the bank have done a survey of investment

professionals. And I was stunned to see this. They asked all these professionals, like, what do you use when you're analyzing stocks? About 80 percent, I think, said that they use a price to earnings multiple to gauge the value of a company, more than half look at return on equity. And you go down the list, near the bottom of the list was this free cash flow to enterprise value metric that we like to use and so many others are looking at as a measure of quality. Only 25% of the folks survey said that this was a metric that was really on their radar. Okay, so tell me more about this moment in time for an investor who holds, let's say, an S&P 500 fund. I was reading in some of your research, you were talking about valuations look a little high. And, and

what that meant for potential returns going forward, and you can talk to me about that. And you were saying that you can look at a number of different satellite strategies if you're looking to offset this. I forget the term you used, an iffy core. I remember it made me think something someone might say about me in the gym, something about a core that was, you know, your S&P 500, your core was uncertain. So you might need these other positions to augment it a little bit. Tell me about how the broad market looks and how quality can help with that. If your core is no good, Jack, I think that they tell you, like, working really hard on your calves and, like, wrists and stuff is not going to help. I think is the...

I'm all calf. That's what they say. I'm all calf. But in this case, though, our comment was that when we take on board the forecast from our colleagues in research and the different asset classes and regions, the expectation from our colleagues is that a 60, 40 basket U.S. equities and treasuries. after inflation might net you something like 1% next year in total, nothing to write home about. And it's possible that we get something different. The markets are uncertain.

But the point is that when large cap equities are, let's just say, fairly valued, if not outright expensive, treasuries are enduring one of the longest, largest drawdowns in history, you know, since 2022. And the expectations are getting tricky. This seems like an ideal time, especially the changes that we saw in terms. 2025 in which investing broadly where you find good opportunities seems like a smart way to go. So that satellite core approach has never been easier, whether it's through ETFs, through different baskets or other products.

There's a few places that have performed really well this year. We think can continue international small stocks, especially with the value tilt, have done incredibly well. That's kind of the opposite. It's the exact opposite of what everyone is obsessing on. Everybody's looking at large cap growth U.S., and so you're saying small cap over overseas value. Yeah, small cap overseas value.

It's literally the mirror image. I mean, I'd maybe date myself a little, but there was an old episode of Seinfeld where George realized how terrible his life was going. And he said, maybe if I should just do the opposite of what I think I normally ought to do, my life will go well. And it does. In this case, you know, the large cap growth is doing really well in the U.S. But you can also do the opposite and do really well is the amazing result with about the same

returns and less volatility over the past five years. Hard to believe, actually, those facts, but they're true, and less and less correlated to large-cap growth than they've ever been before. A lot of that has to do with the success of corporate reforms in Japan and a few other places. I would not take it as a wholesale endorsement of buying developed markets around the world willy-nilly. I think the small and value components in these tactical regions are really important. But there's some funds to do that work for you. I think that's an attractive place to be, and it certainly has been the past five years. We mentioned quality, and that's a U.S. store.

still in the U.S. in fixed income, we think it's been a great time to be diversified into credit sectors and places that are not part of most fixed income benchmarks, things like emerging market debt, fallen angel high yield corporate bond funds have performed well. And we think those can continue to perform well next year, even if the very top of the market gets a bit uncertain. The balance sheets of many of these companies and countries are in a place that should produce some meaningful returns above the typical fixed income benchmark. That's certainly been the case in our work, you know, in the past few years. I think that that unlocks the mysteries of the universe here for me with regard to quality. It's most helpful. Is there anything I've

neglected to ask you on the subject of either quality investing or different ways people can augment their S&P 500 fund or other satellite positions they should hold? Anything else on this subject that you want listeners to know? Two other things I would like to mention. So many of us are focused on equities for good reason and on hedges or balances from fixed income, you know, again, for a good reason. I think that the two other pieces that we hear a lot from investors these days that have become so important are major themes and also real assets. Everyone knows that gold has been an incredible run. I think that the upside, not just for gold, but for real assets generally, whether it's through direct sort of commodity trend following

strategies through the equity of commodity companies or other different investment vehicles, is going to be really important in the years to come, even if inflation cools in 2026, even if the Fed can cut interest rates and so on and so forth, then we think that they will. Having a portfolio that's robust against risk of inflation of big moves and currencies and these other risk factors that have been off the radar for so many investors for the past 20 years, we think it's going to be incredibly important. So there's, again, lots of products to get at this, but I think the main thing when it comes to real assets and commodities is to have a not a buy-and-hold static index.

but something that's a bit more dynamic. You know, if you think about the S&P 500 in 1970, I don't know what the weight to like AT&T was. I think it was probably really large, much larger than it is today. Same thing's true in commodities. The kinds of commodity indexes that have had static weights for decades have underperformed in a really unhelpful way.

There's a newer generation that are more dynamic and some products that are linked to those that have actually given a great result in recent years. Dematics as well, whether it's artificial intelligence, or nuclear power or industrialization, reindustrialization, and onshoreing. You have to be careful. You don't accidentally double up on exposure. But some of these thematic approaches have performed incredibly well and been effective,

not just for returns, but also as diversifiers. As many different governments and countries in the world think differently than they have in recent decades about what kind of economy that they want to support, I think that making sure our portfolio is positioned to capture those changes. is going to be really valuable in a way that really wasn't necessary for a lot of investors for the past couple decades. As the world changes, we try to change with it. And in our work, when it comes to asset allocation and where to put new money to work, I think there's a big range of opportunities that really weren't on the menu for quite a long time, but look really attractive today.

Thank you, Jared. I promise you some ETFs and stocks at the end. When Jared talks about Companies with high free cash flow as a percentage of enterprise values, those companies outperforming over decades, that is most similar to the methodology of an ETF called Pacer U.S. Cash Cows 100. The ticker there is C.O.W.Z. The problem is that fund has a big value tilt, and so it has not been immune to the underperformance of value stocks over the past decade. done well over the past 30 years, not as well over the past 10. One of Jared's top recommendations for quality ETFs is something called Victory Shares Free Cash Flow. The ticker there is VFLO. And that also screens for free cash flow yield,

but then it runs a secondary screen for earnings and sales growth trends. That fund was only launched two years ago and it was recently running a few points ahead of the S&P. P 500. The Cash Cowes portfolio that went recently for an average of 15 times earnings. The Victory Shares portfolio that went for 14 times earnings. Investors can also screen for their own stocks. I ran a screen recently for companies with high free cash yield while keeping an eye out for healthy returns on equity and also any recent analyst upgrades. The stocks I came up with are AT&T, Chevron, Decker's Outdoor, Expedia Group, General Motors, Merck, and Omnicom

Group. You can read more in that Barron's cover story about what's the like about each of those stocks in the view of analysts who have recently upgraded them. And that's quality stocks. I think we're done. Stay hydrated out there. Don't forget to cool down. This was a workout. Okay. I want to thank Jared Woodard from B of A Securities. And thank you all for listening. Alexis Moore is our producer. If you have a question you'd like played and answered on the podcast, send it in. It could be in a future episode.

Just use the voice memo app on your phone. Send it to jack.how, h-o-u-g-h at barons.com. You can subscribe to the podcast on Apple Podcast, Spotify, or wherever you listen to a podcast. And if you listen on Apple, go ahead and write this review.

See you next week.