|  | | | | | | GOLDMAN SACHS: This trade is your best bet for big stock gains as economic growth dwindles
- The stock market's rapid recovery since December has distracted investors from a troubling slowdown in economic growth.
- Goldman Sachs says the slowing economy is starting to eat away at corporate sales growth, but the firm has formulated a strategy to help investors profit anyway.
- Further, Goldman reveals a basket of stocks primed to outperform going forward.
As the stock market has enjoyed a rapid recovery since its late-December reckoning, a troubling development has bubbled under the surface.
US economic growth — which, for months, showed signs of strength — has sharply decelerated. A proprietary "current activity" indicator maintained by economists at Goldman Sachs has been cut nearly in half since the end of December, the firm said in a recent note.
Upon first glance, this might not seem troubling for stocks, considering the Federal Reserve should theoretically be less likely to raise interest rates when the economy is flagging. But the slowdown has had the secondary effect of dragging corporate revenue growth lower — something investors never want to see.
Goldman finds that consensus expectations for year-over-year sales growth have slipped to 5.4%, a full percentage point lower than in December. Given this information, the most prudent approach would seem to be to identify and buy stocks still boasting strong revenue prospects.
It's a strategy that's gotten results. As this chart shows, high-revenue-growth stocks have beaten the benchmark S&P 500 as economic growth has slowed.
But Goldman's best strategy for playing a slowing economic environment doesn't end there. Finding high-sales-growth companies is just half the battle.
The firm is also keenly focused on a metric called operating leverage, which is calculated by looking at a company's share of fixed costs as a percentage of revenue. The thinking is, the lower this measure is, the less impact a slowing economy will have on sales. And that, in turn, will offer better stock returns.
So Goldman's approach is really a hybrid of identifying companies that offer both fast sales growth and rigid cost structures. And in the event you're not sold, the firm finds that this low-operating-leverage strategy has outperformed the broader market by 250 basis point over the past two months.
What's more, Goldman notes that the trade is cheap relative to history. Or, perhaps more accurately, a high-operating-leverage investing technique is historically expensive. No matter how you slice it, that makes companies with low operating leverage that much more appealing right now.
"In the current macro environment, we recommend investors own stocks with low operating leverage and sell companies with high operating leverage," David Kostin, Goldman's chief US equity strategist, wrote in a client note.
So what types of companies can currently be found in the low-operating-leverage basket that Goldman maintains? The firm includes stocks across eight S&P 500 industries, with information technology leading the way.
Here's a sampling of the basket's components, which includes the 10 companies with the lowest degree of operating leverage, based on the methodology outlined above: Omnicom Group, Altria Group, TransDigm Group, Expeditors International, LyondellBasell Industries, VeriSign, Copart, HCA Healthcare, HollyFrontier, and McDonald's. Read » | | | | | |  | | | | | | | | | | | | | Was this email forwarded to you? | | | | | | | | | | Share this | | | | | | | You received this email because you signed up to the
Business Insider newsleitter using the
email: ipat39@gmail.com | | | | | | | | 1 Liberty Plaza, 8th Floor. New York, NY 10006 | | |  | |
|
Tidak ada komentar:
Posting Komentar