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Investment Banks Share Their Stock Market Hot Picks

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Stock market hot picks

It’s clear the stock market remains volatile, but two investment banks are seeing good things about to happen.  Goldman Sachs looked at the market volatility situation, while Stanley Morgan made recommendations based on observed consumer behavior during the outbreak. Both firms shared their insights for the next 12 months, including their list of stock market hot picks to watch out for. 

Goldman Sachs, Morgan Stanley Upbeat Amid the Current Volatility

Shares Their Stock Market Hot Picks

Investment titans Goldman Sachs and Morgan Stanley, in separate reports, came out with different approaches on how to take advantage of the current market and which stocks can get hot soon. 

Related Article: Morgan Stanley Sees a V-Shaped Global Recovery

Goldman Sachs Take on a Sharpe Strategy; Picks 11 Stock Market Hot Picks to Watch Out For

Financial giant Goldman Sachs recently updated its strategy of targeting stocks that have “highest risk-adjusted returns.” This rate, known as the Sharpe ratio gauge, helps investors assess the ROI of a stock compared to its risk. The ratio is the average returned more than the risk-free rate per unit of volatility or total risk. A higher Sharpe ratio often leads to more attractive returns.

Goldman Sachs chief US equity strategist David Kostin believes that while stocks will remain volatile, the upside is still there: “Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months.”

By May,  the company’s basket of high Sharpe ratio stocks outperformed the benchmark index by 441 basis points. It also beat the S&P 500 in 66% of semiannual periods by 271 points beginning 1999. 

The Goldman Sachs basket consists of stocks distributed across various industries such as healthcare, media, IT services, aerospace, and defense industries. Kostin believes that in the next 12 months, the basket will generate returns three times the value of comparable S&P 500 stock returns. 

As discussed in the article, some of the stocks with the highest Sharpe ratios at present: 

  1. Allstate (ALL)
  2. Boston Scientific (BSX)
  3. Cigna (CI)
  4. Concho Resources (CXO)
  5. Edwards Lifesciences (EW)
  6. Hartford Financial Services (HIG)
  7. Merck (MRK)
  8. Northrop Grumman (NOC)
  9. Ulta Beauty (ULTA)
  10. Universal Health Services (UHS)
  11. Western Digital (WDC). 

Morgan Stanley Sees Rising Stock Prices on 10 Companies That Perform Better Under the “New Normal”

Meanwhile, Morgan Stanley took a look at the pandemic’s effects and identified the industries and companies that stand to benefit the most from the resulting changes in consumer behavior. With the vaccine still at least a few months away, a large section of the public started adjusting to life under the new normal. Staying at home while avoiding physical and social activities became the norm. Meanwhile, other behaviors deemed safer that have sprung up to take their place.  

Morgan Stanley analysts concluded that the travel and tourism industries were among the hardest hit by the outbreak. Both suffered heavy losses due to travel restrictions and the closure of all public establishments due to fears of spreading the infection. 

The closure of one window led to the opening of another, as opportunities increased for certain industries to serve the demand generated by the new normal. These include online shopping, food delivery, home entertainment, DIY projects, and others.  

Morgan Stanley analysts determined four opportunistic themes that arose from the pandemic:  

  1. Rising demand for streaming services due to avoidance of live events. Online events have replaced live performances, where artists stayed home. 
  2. Increase in off-premise food consumption. Despite some restaurants opening their doors, most people still find it risky to dine in. Instead, they opted for delivery or ordering via drive-thru.  
  3. Financial institutions with less risky loans made out to currently underperforming establishments. This includes malls, hotels, resorts, etc. 
  4. Retail store traffic reductions and shifting preferences in apparel. Wholesale businesses have performed well due to the rise in online orders. 

Based on these themes, analysts identified ten companies best positioned to perform well. Listed below are these recommended stocks, and grouped according to their theme:  

– Rising demand for streaming services: 

  • Amazon (AMZN)
  • Netflix (NFLX)
  • Spotify (SPOT)
  • Walt Disney (DIS)

– Increase in off-premise food consumption

  • McDonald’s (MCD)
  • Restaurant Brands International (QSR)
  • Yum Brands (YUM)
  • Domino’s Pizza (DPZ)

–  Financial institutions with low risk 

  • SVB Financial Group (SIVB) 

– Retail store traffic reduction

  • Nike (NKE)

Watch this video from Latest News to learn more about the Stock Market Hot Picks:

While both firms made different approaches, both Goldman Sachs and Morgan Stanley showed optimism for the American economy. The pandemic may have disrupted a lot of industries, but the inevitability of recovery is clear. Among the Wall Street rubble that happened in March are hot stocks in the making. What would be your choice of Stock Market Hot Picks Recommendation? Let us know in the comments below.

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Republicans Ready To Finalize Stimulus Bill As Dems Continue To Squabble

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Republicans Ready To Finalize Stimulus Bill As Dems Continue To Squabble

Treasury Secretary Steve Mnuchin and White House Chief of Staff Mark Meadows met with House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer on Saturday. This is a rare weekend session to try and break the stalemate between Republicans and Democrats over the next stimulus bill.

No deal was finalized. However, Mnuchin said he and Meadows were willing to meet with Democrats every day. This can go on until an agreement is reached.

The sticking point for Republicans is an unwillingness to extend the $600 per week unemployment benefit. They feel the amount needs to be pared down to a more reasonable $200 per week so that unemployed workers have a financial incentive to find work instead of making more money by remaining unemployed.

Unsurprisingly, Democrats want the $600 to be reinstated and have tied it to a host of other demands that have nothing to do with the pandemic, like their insistence on approving $1 trillion to be sent to state and local governments to fund budget shortfalls, food stamp increases, and assistance to renters and homeowners. Mnuchin said that’s “something we’re not going to do.”

Democrats Refuse to Agree

Mnuchin appeared on ABC’s “This Week” yesterday. There, he said the White House understands the need for extra unemployment benefits. However, he also says the Democrats are holding up the deal.

“The president is very concerned about the expiration of the unemployment insurance,” Mnuchin said, adding “We proposed a one-week extension at $600 so that, while we negotiate a longer term solution, at least all those people don’t lose their money. I’m surprised the Democrats won’t agree to that. They’re insistent on having a larger deal.”

He also said that Republicans aren’t willing to burden our country with more debt.

“There’s obviously a need to support workers, support the economy,” Mnuchin said. “On the other hand, we have to be careful about not piling on enormous amounts of debt.”

Until a Deal Is Made

He added that the White House supports a one-week extension of the $600 per week until a deal is struck. However, he believes $200 is a more appropriate amount for the extra weekly benefit.

“There are cases where people are overpaid,” Mnuchin said.

He did add that both sides agreed on the need for another $1200 stimulus payment for Americans, and that once approved, the checks could be in the mail within a week.

Both sides have agreed to meet daily until a deal is struck, and at least one Democrat sounds optimistic that a deal will be reached sooner rather than later.

“This was the longest meeting we’ve had and it was more productive than the other meetings,” said Schumer. “We’re not close yet, but it was a productive discussion — now each side knows where they’re at.”

Chief of Staff Meadows, however, doesn’t expect a deal is forthcoming. Appearing yesterday on CBS’s “Face The Nation,” Meadows said, “I’m not optimistic that there will be a solution in the very near term.”

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Here’s Why The ‘Cockroach Portfolio’ Is Gaining Popularity

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Here’s Why The ‘Cockroach Portfolio’ Is Gaining Popularity

Ray Dalio, the founder of Bridgewater Capital, calls it the “all-weather portfolio” and it’s helped his investment management firm amass roughly $140 billion in assets.

Former Libertarian presidential candidate Harry Browne called it his “fail-safe investing” portfolio. Additionally, It just had its best three-month return ever. It returned 18%, far exceeding its average annual return of 7%.

Browne’s investing philosophy was that when times are good, stocks do well. Meanwhile, bad times are good for Treasury bonds, and gold does well during stagflation. Also, cash is king during a recession or crisis.

Since we don’t know what the future holds, Browne advocated for putting 25% of your portfolio into each asset class. He also suggests being prepared for whatever comes. With bonds, gold, and Treasury’s in your portfolio, you’ll underperform during a bull market. However, you can more than make up for it by softening the blow during a down market.

The “Cockroach” Portfolio

Back in 2012, Dylan Grice, a former strategist with SG Securities, called that type “the cockroach” portfolio. He dubbed it as such due to its ability to survive anything thrown at it.

“What I like best about cockroaches,” wrote Grice, “isn’t just their physical hardiness, it’s the simple algorithm they use to survive. According to Richard Bookstaber, that algorithm is ‘singularly simple and seemingly suboptimal: it moves in the opposite direction of gusts of wind that might signal an approaching predator.’ And that’s it. Simple, suboptimal, but spectacularly robust.”

Grice has calculated that for long-term investors, this type of portfolio has done at least as well as the traditional 60/40 stock and bond mix since the early 1970s. But most importantly, it managed to avoid any massive drawdowns.

And just like cockroaches, your first job is surviving as an investor, says Groce, while prospering is job number two.

A Similar Approach

Fortunately for investors who are looking for this type of portfolio, an ETF has recently launched that follows the same approach as the “cockroach” portfolio.

It’s called The Advanced Research Investment Solutions Risk Parity ETF (RPAR) and was launched last November. Alex Shahidi, the managing partner and co-chief investment officer, says they’re up to $620 million in assets so far.

He says the ETF has returned 12% so far this year compared to 1% for the S&P 500.

Most importantly, during the crash in March it fell just 15%, less than half of the drop in the S&P 500.

According to Shahidi, the fund is 25% stocks, 15% industrial commodities, 17.5% gold, 20% long-dated Treasury inflation-protected securities and 42% long-term Treasury bonds. Total exposure to the market is 120%, because the fund is 20% leveraged.

The stock mix is half U.S. and half overseas stocks, with the overseas portion tilted toward high volatility emerging markets.

Nobody knows what the market will do next, so Shahidi says you want to be prepared for any outcome. “You want to be diversified to (different) economic environments,” he added.

He did say that “If I had to pick an asset class for the next 10 years, it would be gold.”

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How To Buy Gold For Your Investment Portfolio – Part 2

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How To Buy Gold For Your Investment Portfolio - Part 2

Yesterday was part one of buying gold and silver coins for your investment portfolio. With gold and silver both on a hot streak, investors are looking for the fastest way to gain exposure to and buy precious metals. You must be prudent and exercise caution so you don’t make a mistake and find yourself with a bad investment.

Do: Buy Gold With Your Savings

Don’t borrow money to buy gold. Use your savings so when you take possession of your gold, it’s yours without any claims against it. With volatile gold prices, you don’t want to be paying back a loan on your gold if the price suddenly dips.

Don’t: Buy Gold With Credit

The current financial system is built on fiat currency and debt with dollars being printed out of thin air. The reason to own gold is the opposite of that. So to purchase gold by using the system it is protecting against defeats the purpose of owning gold. Just use your savings and own your gold outright from day one.

Do: Store Coin Nearby

If a crisis hits and you need access to your gold, you don’t want to be out in public trying to retrieve your gold. So whether it’s in a small safe hidden in your house or buried in your yard, keep your gold nearby for easy access.

Don’t: Store Coins In a Safety Deposit Box

Storing your gold at a bank sounds like a safe decision. But it’s a bad idea for a few reasons. The first is that if there were ever a crisis, you have to go to the bank to retrieve your gold. That assumes the banks will be open during a crisis. Then you have to get access to your safety deposit box, retrieve your coins and safely get them home. That’s a lot of things that need to go right during a crisis. Additionally, gold has been confiscated before. Here in the US, gold was confiscated in 1933 under Franklin Roosevelt. If it were to happen again, gold stored at home, where there is no record if it, is much safer.

Do: Only Invest With Money You Don’t Need For Awhile

Nobody knows when inflation will hit, or the dollar will collapse, or when gold prices will finally take off. But we aren’t trying to time any of those occurrences. The reason to own gold is a long term store of value. So you don’t want to speculate in gold. We could see prices move higher or significantly lower. But long term, history has shown that gold prices steadily march higher as the dollar steadily declines in value. So when buying gold, make sure it’s with money that you don’t need in an emergency. We suggest using savings or other funds that you don’t need to worry about getting access to for at least five years.

If you have any more questions about investing in gold, find a reputable gold coin dealer near you. They will be glad to answer questions.

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