GOLDMAN SACHS: Here's where to put your money as trade tensions heat up


Trade-related headlines put the stock market at risk of more volatility.

To help its clients navigate these swings, Goldman Sachs has reiterated four of its top strategies that should keep investors on track for strong returns this year.

The recommendations are not hedges against specific risks that trade disputes create for certain companies and industries. Instead, David Kostin, the chief US equity strategist, is reiterating some of his top ideas at a time when markets are vulnerable to swings based on trade-related headlines.

These strategies are supported by an expectation that earnings growth will extend the nine-year-old bull market’s lifespan. Goldman forecasts that the S&P 500 will rise 5% to 2850 by the end of this year.

The four strategies are:

High sales growth

“Stocks with the fastest revenue growth will outperform in a decelerating economy and also offer value relative to history,” Kostin said. He anticipates that sales will drive profits, which would then drive stocks.

Goldman’s basket of stocks with high sales growth has outperformed the S&P 500 by six percentage points this year. Companies with the highest estimates for sales growth next year include Netflix, Amazon, Campbell Soup, and Salesforce.com.

Goldman Sachs

Financials

As interest rates rise, banks should earn the difference between the lower rates at which they borrow and the higher rates at which they lend. Goldman also expects bank stocks to benefit as they repurchase more shares after passing the Federal Reserve’s stress tests.

Goldman Sachs

Companies with strong balance sheets

They are another play on rising interest rates: as borrowing costs increase, firms with the most cash and minimal debt are best positioned.

Goldman’s basket of such stocks has gained 7% this year, topping the S&P 500’s 3% increase. They include Chipotle, Monster Beverage, Facebook, and Nvidia.

Kostin has previously cautioned that many companies with strong balance sheets are also growth stocks. This overlap is historically unusual, he said, and could pose a risk if investors rotate into more defensive stocks.

Companies with low labor costs

While workers always welcome raises, they translate to higher costs for the companies paying them.

And so in an environment of faster wage inflation, Goldman recommends finding companies with low labor cost exposure, which have a lower risk of shrinking margins.

The low labor cost basket includes Under Armour, Gap, Western Union, and Alphabet. The median stock in this basket has an implied labor cost of 5% of revenues, versus 13% for the S&P 500.