Goldman Sachs reportedly has urged investors to buy stocks in cyclical sectors, capture value in “bond proxies,” and avoid much of the health-care sector until the political fallout clears.
With the S&P 500 trading close to fair value, investors should “focus below the surface” to find value, strategist Ben Snider and his team at Goldman Sachs in a note to clients, Barron’s recently reported.
Among industrials, Snider and his team like transportation companies such as airlines, railroads, and freight/logistics firms. Goldman also likes aerospace and defense stocks, which account for nearly 30% of the sector. “The downside: industrials (excluding some defense contractors) are heavily exposed to China and the ongoing trade conflict,” Barron’s explained.
The “bond proxies” are utilities, consumer staples, real estate, and telecom shares. Barron’s said those shares haven’t lived up to historical precedent.
“Within the bond proxies, his preference is for real estate and telecom. And he likes stocks that have underperformed the market and decline in rates—without a corresponding decline in earnings estimates. Stocks that fit the bill include CenturyLink (CTL), UGI (UGI), Jones Lang LaSalle (JLL), Altria (MO), Verizon Communications (VZ), Exelon (EXC), and PPL (PPL),” Barron’s explained.
“As for health care, Snider suggests largely avoiding it. Concerns about “Medicare for all” and the Trump’s administration’s plans to eliminate drug rebates from government health plans are weighing on the sector. And while many of the stocks do look cheap, policy concerns are likely to rise before the 2020 election, keeping the sector under pressure,” Barron’s wrote.
To be sure, stock-picking is a fickle art, at best.
Two years ago, an Arizona State University professor made waves with a study showing all the wealth created by U.S. stocks is the result of gains in a weirdly small group of companies. Now he’s back with an update that shows the situation is no cheerier in the rest of the world.
Hendrik Bessembinder, a 62-year-old researcher in financial market design, and his team sifted through about 62,000 stocks traded in more than 40 countries between 1990 and 2018. Their finding: about 60% were such duds they did worse than one-month U.S. Treasury notes. The proportion was even greater than in the initial study, which focused on the U.S., Bloomberg reported.
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