Investors are on edge after US stocks fell for three straight weeks, pointing to the possibility of higher interest rates for longer than expected. The 6-month and 1-year Treasury yield closed at 5% on Friday, thanks to multiple economic data releases over the past week that pointed to a strong US economy. A rise in bond yields leads to higher borrowing costs for companies, increasing downward pressure on stocks. Despite this challenging environment, Goldman Sachs remains optimistic and expects a “soft landing” for the US economy. In this scenario, inflation will at most be brought under control with a mild recession. Still, the investment bank advised its clients in a statement published on February 17: “Expect the best (soft landing), but insure yourself against the worst (hard landing). Prices drive ours [stock] Recommendations,” the bank said in the note, titled “Where to Invest Now.” a decelerating inflation environment. What follows are the top four stocks Goldman Sachs names in its “soft-landing portfolio.” The bank describes the list as “cyclical laggards with low valuations and strong balance sheets” in the Russell 3000 Tesla, Garmin, the GPS technology company , Mohawk Industries, a global flooring manufacturer, and TopBuild, a supplier of insulation and building materials. Analysts at Goldman Sachs expect earnings per share to grow 5% for Tesla and 7% for Garmin over the next 12 months, compared to a S&P 500 growth of 1%. Hard-landing stock picks While not the bank’s base case, Goldman also presented investors with a “hard-landing portfolio” of Russell 1000 companies with “low value ions, strong balance sheets, [and] Dividend yield.” The top names on this list were video game giants Activision Blizzard and Electronic Arts, along with retailers Home Depot and Lowe’s Companies doing better in an economic downturn. Investors should avoid stocks with weak margins, she added, especially when there’s a chance the recent decline in cost-cutting and spending could reverse. Goldman Sachs has previously predicted that the S&P 500 will end the year at the same level — 4,000 — which translates to a 0% return for 2023. It ended Friday at 4,079.09.
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