Here’s why Barclays says U.S. equity investors need to "return to fundamentals"

Investing.com - A return to "fundamentals" is essential for navigating the current U.S. stock market during a time of broader economic headwinds and heightened geopolitical uncertainty, according to analysts at Barclays.

In a note, the bank said it "may be time" for investors to "get back to the basics," focusing on corporate financial statements and assessing which businesses are positioned for success in the current operating environment.

The second-quarter earnings season saw "strong" returns, with earnings per share (EPS) and sales growth at 10.6% and 6.1%, respectively, the analysts including Andrew Ferremi flagged. They also said that strategists at Barclays recently raised their 2025 price target for the benchmark S&P 500 to 6,450 from 6,050 and revised their EPS projections higher following a fiscal first half that was "stronger than expected."

While "fundamentals appear to be largely intact," the analysts noted that a surge in enthusiasm around artificial intelligence has "shown no signs of losing steam" coming out of the latest batch of quarterly results.

The AI boom has provided a key power source for a wider U.S. stock market rally, helping equities ride out a swoon in early April sparked by the unveiling of sweeping tariffs by President Donald Trump.

So far this year, the S&P 500 has risen by more than 13%. On Tuesday, the index ticked down slightly, snapping a run of fresh all-time highs logged in recent days.

"[S]tructural shifts – most notably the rapid development of AI – are beginning to reshape industries and investment narratives. While AI has driven significant gains in select areas of the market, the broader implications of this technology are likely only beginning to unfold," the analysts wrote.

As a result, they outlined a desire to identify companies with "operational strength and strategic positioning to not only adapt, but continue to thrive as this secular trend accelerates," in addition to names that their sector analysts view as attractively valued in the current backdrop.

The analysts highlighted a range of "overweight"-rated stocks which are considered to have the "best fundamental stories," trade inexpensively at current levels, and have an average market value of roughly $30 billion. These include footwear brand Deckers Outdoor, climate control products provider Lennox International, and life sciences firm Thermo Fisher.

Software group Autodesk, healthcare firm CVS Health, and consumer products maker Newell Brands were also viewed as "idiosyncratic drivers to the upside" and an average market cap of about $29 billion.

Other "contrarian ideas" -- regardless of rating -- were also identified: heating and ventilation equipment player Carrier Global, casino operator Penn Entertainment, and semiconductor name Texas Instruments.