We are now far enough into 2016, and have seen enough serious damage, that portfolio teams around Wall Street are starting in earnest to make some changes in their top portfolios. One thing is for sure, despite last week’s encouraging move higher in the markets, and a possible good start to this week, this could be another year of below-average returns as economic growth remains very tepid.

The UBS Quality Growth at a Reasonable Price (Q-GARP) portfolio has consistently outperformed the S&P 500 since inception in 2007, and it offers investors an outstanding portfolio using an initial quantitative screen of stocks based on:

1. Quality metrics: high and stable profitability
2. Growth: high expected earnings growth
3. Valuation: low valuation relative to peers.

The final list is a compilation of quality growth stocks that the UBS team believes are trading at attractive valuations.

The portfolio managers make some big changes, and an uber-blue-chip tech stock is removed from the portfolio and replaced by another top technology leader. The analysts also add a top consumer discretionary company.

Apple Inc. (NASDAQ: AAPL) evolutionized personal technology with the introduction of the Macintosh in 1984, but UBS thinks it is time to be removed after a long stay on the Q-GARP list. Apple leads the world in innovation with iPhone, iPad, Mac, Apple Watch and Apple TV. Its four software platforms — iOS, OS X, watchOS and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services, including the App Store, Apple Music, Apple Pay and iCloud.

UBS cites that, while the company still trades at a very cheap 10 times earnings, they feel the days of Apple as a solid growth company may be over. Clearly it has been a huge home run for investors over the past 10 years, but the hyper growth that has been exhibited since the iPhone debut may be coming to an end.

Apple investors receive a 2.17% dividend. The Thomson/First Call consensus price target for the stock is posted at $135.92. Shares closed on Friday at $96.04.

Added to the Q-GARP list was Adobe Systems Inc. (NASDAQ: ADBE), a high-profile old-school software company that also resides on UBS’s Equity Focus list. It operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content.

The Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured and optimized. It provides analytics, social marketing, targeting, media optimization, digital experience management and cross-channel campaign management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers and chief revenue officers.

The Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturer printing businesses.

Adobe is also reasonably safe route for investors looking to own a company with marketing automation product, which has become huge. The consensus price target is $103.09, and shares closed on Friday at $80.87.

Many on Wall Street feel Lowe’s Companies Inc. (NYSE: LOW) deserves a premium multiple to their peers, and it also was added to the Q-GARP portfolio. The home improvement retailer offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under many categories, including kitchens and appliances; lumber and building materials; tools and hardware; rough plumbing and electrical; lawn and garden; and home fashions. The company also offers installation services through independent contractors in various product categories

The company serves individual homeowners and renters, including do-it-yourself customers and do-it-for-me customers, and it serves professional customers, such as construction trades, as well as maintenance, repair, and operations. As of October 30, 2015, it operated 1,849 home improvement and hardware stores in the United States, Canada and Mexico. The company also sells its products through online sites and through mobile applications.

UBS notes that despite a slow-growth economy in general, the U.S. housing-related industries should remain resilient. In particular, the firm feels that the home improvement retailers should benefit from healthy consumer fundamentals, still rising home prices, continued low interest rates and increasing housing turnover.

Lowe’s shareholders receive a 1.63% dividend. The consensus price target is $83.62. Shares closed Friday at $68.52.

There you have it, the first big changes to the Q-GARP portfolio for 2016. UBS is always careful to make sure the companies in the portfolio continue to be true growth stories, and the two new additions certainly seem to have the attributes to be considered just that.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.