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.
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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:
- Allstate (ALL)
- Boston Scientific (BSX)
- Cigna (CI)
- Concho Resources (CXO)
- Edwards Lifesciences (EW)
- Hartford Financial Services (HIG)
- Merck (MRK)
- Northrop Grumman (NOC)
- Ulta Beauty (ULTA)
- Universal Health Services (UHS)
- 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:
- Rising demand for streaming services due to avoidance of live events. Online events have replaced live performances, where artists stayed home.
- 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.
- Financial institutions with less risky loans made out to currently underperforming establishments. This includes malls, hotels, resorts, etc.
- 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:
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- 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: