Investment Banks Share Their Stock Market Hot Picks
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
It’s clear the stock market remains volatile, but two investment banks are seeing good things about to happen. 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:
- 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:
- 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:
Walmart Teams up With Shopify to Take on Amazon
Walmart has forged an agreement with Shopify to help its third party marketplace improve its online presence and set its sights on online behemoth Amazon. By enlisting the help of Shopify, the retail giant plans to add 1,200 online sellers to its walmart.com store site and draw more online shoppers. Shopify helps sellers create a website and provides a shopping cart solution to provide an easier shopping experience.
The market welcomed the partnership, as Shopify shares gained 5% and Walmart getting a slight uptick. Walmart is currently capitalizing on its recent success in online sales, which grew 74% during the first quarter. However, its growth came primarily from its third party marketplace rather than its first-party (direct purchase from suppliers) store. The deal with Shopify further strengthens the infrastructure for its third party marketplace.
Walmart has embarked on a series of strategic moves to expand its e-commerce, recently purchasing Bonobos and Modcloth, and has recently announced a deal with resale firm ThredUp.
Sorry AOC, Billionaires Haven’t Made $434B During Pandemic
Nation’s Billionaire’s See Net Worth Jump $434B in First Two Months of Pandemic
It was an eye-opening headline, and fairly drew the frustrations of a lot of us. This is especially true for the 38+ million Americans who have lost their jobs since the coronavirus pandemic shut down. Our country has been at it a little more than two months ago.
How dare they get richer while we suffer?
Chuck Collins, director of the Institute for Policy Studies Program on Inequality, the co-author of the report, expressed his piece. He said, “The surge in billionaire wealth during a global pandemic underscores the grotesque nature of unequal sacrifice.”
Meanwhile, Frank Clemente, the executive director of Americans for Tax Fairness which co-authored the study, also shared his opinion. He said, “The pandemic has revealed the deadly consequences of America’s yawning wealth gap, and billionaires are the glaring symbol of that economic inequality.”
Democrat Alexandria Ocasio-Cortez didn’t want to miss the opportunity to inject her brand of socialism into the public discourse. “Really great system we got here. Can’t imagine why anyone would question how beneficial or sustainable it is for the working class,” she tweeted. This is in response to CNBC running the headline.
The Study’s Flaws
The top five US billionaires explicitly mentioned in the article are all Democrats. These include Warren Buffett, Bill Gates, Jeff Bezos, Mark Zuckerberg, and Larry Ellison. But setting that irony aside, the problem is that the article is simply dishonest, points out MarketWatch columnist Steve Goldstein.
“The study… examines billionaires’ wealth between March 18 — the rough start date of the pandemic shutdown, when most federal and state economic restrictions were in place — and May 19. It relied on the Forbes’ billionaire list, which itself is built around stock-market performance.”
The flaw, as Goldstein points out, is that the beginning and end dates used for the study are incorrect.
“Think about that in the market context. The pandemic did not start March 18 (nor, of course, had it ended on May 19), and certainly market concerns about the pandemic did not start March 18. Far from it.”
He says that to see a true picture of how much money the billionaires made – or lost – during the pandemic, they need to expand the date range.
“A more logical way to think about whether billionaires got richer, or not, is to think about the performance from the Feb. 19 peak in the market, after which more investors began to get concerned by the novel virus. You then get to see who got richer even in the face of the crippling economic blow.”
If you use this revised date range, Goldstein says the truth is that billionaires have actually lost money since the market peaked and the pandemic began
“Cumulatively, the top 50 billionaires lost $232 billion between the market’s peak and this Tuesday. If the remaining billionaires on the Forbes list lost wealth at the same roughly 12.5% rate that the top 50 experienced, that’s another $200 billion–plus wiped out.”
So while it’s easy to run a headline that bashes billionaires, the truth lies somewhere in the middle.
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