The greater likelihood that the U.S. economy suffers through a patch of stagflation means a group of small cap stocks are especially attractive, according to Bank of America Securities. Stocks fell Wednesday, after a surprisingly hot producer prices report added to fears that the economy may be headed for a period of low growth and rising inflation. The latest wholesale inflation data for February showed headline PPI at 3.4% on a 12-month basis, with core at 3.9%. The latest jobs data for February, reported last week, showed an unexpected contraction in the labor market. Perhaps as a result, volatility is rising in the stock market, with the CBOE Volatility Index recently at about 23. VIX levels 20 signal higher market uncertainty and investor fear. An "all weather" playbook offering high quality plus cash returns to shareholders is most attractive for traders in this environment, especially in the small cap universe, according to Jill Carey Hall, equity and quantitative strategist at Bank of America Securities. Top performing factors "High quality stocks and those returning cash to shareholders have historically been the best performing styles amid a rising VIX, and Value has fared better than Growth," Hall wrote recently. "And if stagflation risks rise if the oil shock is long-lasting, Quality and Cash Return have similarly been the top-performing styles (along with Momentum)." The Wall Street bank identified Russell 2000 stocks that are in the top quintile in both value and quality, looking for companies that pay dividends or have lowered share count over the last 12 months. It excluded stocks with total daily volume below $10 million. Here are 12 of those stocks. Bread Financial , a financial services company offering private label credit cards, is rated buy at Bank of America. It was also upgraded to outperform from in line last month at Evercore ISI, which cited an improving earnings trend. The stock is down 12% from its recent high, but is higher this month by 1.5%. Progyny is a fertility benefits management company that provides employers with specialized care, including services such as in vitro fertilization and egg freezing. It's down 37% from its recent high, and is up 2% this week. TriNet Group and Upwork were two other names on Bank of America's screen.
