Paul Alan Davis sees opportunities in the consumer staples, health care and telecom sectors.
Millions of students and their teachers headed back to school this month, so report cards can't be far behind.
But grading is a year-round affair at Charles Schwab, which employs a proprietary equity ratings system that ranks stocks from "A" to "F" and makes investment decisions based, in part, on the results.
"What we do when selecting stocks is use the Schwab equity ratings and build our portfolio from the bottom up," said Paul Alan Davis, who helps run several funds at Schwab.
"We're taking the signals from 18 factors that we measure on a weekly basis on 3,200 stocks, so we're going where the market is leading us," Davis said Monday on CNBC's "Squawk Box."
Davis said he's picking up positive signals from the consumer staples, health care and telecom sectors. He recommended the following stocks: drug maker Pfizer (PFE, news, msgs), telecom services provider Citizens Communications (CZN, news, msgs), brewer Anheuser-Busch (BUD, news, msgs) and software vendor BMC Software (BMC, news, msgs).
The New York company is the nation's biggest pharmaceuticals company, with medicines to treat cancer, epilepsy, depression, high blood pressure and other major conditions.
More than a dozen of Pfizer's drugs are leaders in their markets, and eight generate annual sales of $1 billion or more. Among its top-selling drugs are pain killer Celebrex, impotency treatment Viagra, antidepressant Zoloft and cholesterol fighter Lipitor.
Stock Charts (Year)
Graphical chart for PFE
Nearly half of Pfizer's revenue last year was generated outside of the United States.
Pfizer in June said it plans to sell its consumer-products business to Johnson & Johnson (JNJ, news, msgs) for $16.6 billion in cash.
Pfizer shares are up 15% year to date. Over the past three years, though, the stock has shed nearly 15% on investor worries about patent expirations, threats from generic versions of Lipitor and Zocor, and problems related to Cox-2 inhibitor Celebrex.
Potential catalysts identified by analysts include the expanded Medicare drug coverage, where Pfizer's size could give it marketing advantages. Additionally, the launch of new products awaiting regulatory approval could provide a boost, and significant cost savings from ongoing restructuring measures should also bolster profits. Aggressive share buybacks could also prop up earnings per share.
Among products launched by Pfizer this year are oral cancer agent Sutent and smoking-cessation drug Champix. It also introduced Exubera, an inhaled insulin.
Pfizer on Sept. 18 was rated 6 out of 10 on StockScouter.