Market

Goldman touts stable stocks for this market; here is their rebalanced portfolio


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Investors should own stable stocks as they grapple with tighter monetary policy and slowing growth, Goldman Sachs strategist David Kostin says.

“Firms with low share price volatility and stable earnings growth should outperform in the uncertain macro environment,” Kostin and team wrote in a note. “Our High Sharpe Ratio basket, which we rebalance in this report, also takes volatility into account, but maximizes prospective risk-adjusted returns.”

The prospective Sharpe Ratio is the return on the consensus 12-month price target divided by 6-month option-implied volatility.

“The strategy has a high hit rate of outperformance,” Kostin said. “The median stock is expected to generate 2x the return of the median S&P 500 (SP500) (NYSEARCA:SPY) stock with only slightly higher implied volatility.”

“At the sector level, the median Communication Services stock has the highest prospective Sharpe Ratio (1.2) while the median Energy stock has the lowest (0.6),” he said.

The basket, down 18% year to date vs. -22% for the median large-cap mutual fund, saw nearly a complete overhaul, with 42 new entrants.

The stocks by sector with new entrants denoted by the asterisk are:

Communication Services (XLC)

  1. Dish Network (DISH)*, expected return/implied volatility 2.4
  2. Disney (DIS)*, 1.7
  3. Netflix (NFLX)*, 1.4
  4. Alphabet (GOOGL)*, 1.4
  5. Omnicom (OMC)*, 1.4

Consumer Discretionary (XLY)

  1. Royal Caribbean (RCL)*, 1.9
  2. Carnival (CCL)*, 1.8
  3. Expedia (EXPE)*, 1.8
  4. MGM Resorts (MGM)*, 1.7
  5. GM (GM)*, 1.7

Consumer Staples (XLP)

  1. Walmart (WMT), 1.1
  2. Mondelez (MDLZ)*, 1
  3. P&G (PG)*, 0.9

Energy (XLE)

  1. ONEOK (OKE)*, 0.9
  2. Williams Companies (WMB)*, 0.7
  3. Marathon Petroleum (MPC)*, 0.7

Financials (XLF)

  1. Intercontinental Exchange (ICE)*, 1.5
  2. Bank of America (BAC)*, 1.5
  3. Wells Fargo (WFC)*, 1.4
  4. Capital One (COF), 1.4
  5. Synchrony Financial (SYF)*, 1.4

Healthcare (XLV)

  1. DexCom (DXCM)*, 1.7
  2. Zoetis (ZTS)*, 1.7
  3. IDEXX (IDXX)*, 1.7
  4. Illumina (ILMN)*, 1.6
  5. Intuitive Surgical (ISRG)*, 1.6
  6. Bio-Techno (TECH)*, 1.5
  7. Align Technology (ALGN)*, 1.5

Industrials (XLI)

  1. Alaska Air Group (ALK), 1.9
  2. Ametek (AME)*, 1.6
  3. Delta Air Lines (DAL), 1.5
  4. Copart (CPRT)*, 1.5

Info Tech (XLK)

  1. Micron (MU)*, 2.0
  2. Zebra Technologies (ZBRA)*, 1.6
  3. Trimble (TRMB)*, 1.6
  4. Skyworks Solutions (SWKS), 1.6
  5. Qualcomm (QCOM)*, 1.6
  6. Global Payments (GPN)*, 1.6
  7. Microsoft (MSFT)*, 1.4
  8. Applied Materials (AMAT)*, 1.4
  9. Motorola (MSI)*, 1.3
  10. Salesforce (CRM), 1.3
  11. Autodesk (ADSK)*, 1.3
  12. Nvidia (NVDA)*, 1.3
  13. Accenture (ACN), 1.3

Materials (XLB)

  1. Vulcan (VMC)*, 1.5

Real Estate (XLRE)

  1. Simon Property Group (SPG)*, 1.5
  2. Prologis (PLD)*, 1.5

Utilities (XLU)

  1. Public Service Enterprise Group (PEG)*, 1.2
  2. AES (AES), 1.2

Some of the above stocks also appear on the latest Wells Fargo list of names to short or avoid.



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