The unstable financial markets in the Eurozone and U.S. spike up with injection of cash from central banks like the ECB and Federal Reserve. The bailouts programs and quantitative easing policies have been a crutch to an economy that cycles through long periods of crisis and short bouts of recovery. The latest programs were announced by the ECB for the Eurozone and by the Federal Reserve’s Ben Bernanke for the U.S. quantitative easing (QE3) on Thursday, Sep 13th. As new policies and programs are announced every few months, it has generated a ‘pattern’ of performance in the stocks that can be noted and strategized from an investment perspective.
Goldman Sachs Group, Inc. (NYSE:GS) has given out some style considerations for QE3, based on how stocks performed after previous QE programs. The report emphasizes that equities with low valuation or those with high growth potential benefit the most from new policy statements of QE. The analysis also notes that stocks which swing up around the time of such announcements, continue to do well through the next weeks. Based on this unusual metric, Goldman Sachs Group, Inc. (NYSE:GS) marks the companies that could benefit from the FOMC announcement, that took place on Thursday, Sep 13th. GS’s Buys in this list include, Edwards Group Ltd (NASDAQ:EVAC), Halliburton Company (NYSE:HAL), eBay Inc (NASDAQ:EBAY), Norfolk Southern Corp. (NYSE:NSC), Hologic, Inc. (NASDAQ:HOLX), Ozz-Chiff Capital Management (NYSE: OZM), and Basic Energy Services, Inc (NYSE:BAS).
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Over 30 stocks are consistent outperformers over all of the past five QE announcements, the list includes Buy rated names like, SanDisk Corporation (NASDAQ:SNDK), Dicks Sporting Goods Inc (NYSE:DKS), The Ultimate Software Group, Inc. (NASDAQ:ULTI), Great Plains Energy Incorporated (NYSE:GXP), Reliance Steel & Aluminum (NYSE:RS), FMC Technologies, Inc. (NYSE:FTI), TE Connectivity Ltd. (NYSE:TEL), Monsanto Company (NYSE:MON), and Textron Inc. (NYSE:TXT).
The performance is judged from 2 weeks before and 6 weeks after such policy announcements as were made in November 2008, March 2009, November 2010, September 2011, and June 2012 (all supporting data is not shown below).
The key observations made in this analysis is that lower valuation outperforms and comes off as the winner through history. Secondly, higher sales, EBITDA and EPS growth, win over lower growth. The analysis was made using GS’s own formulas called Investment Profile. IP measures the performance of stocks in the top quintile, relative to the stocks in the bottom.
Based on the above trends, Goldman Sachs Group, Inc. (NYSE:GS) recommends buying stocks which have the best style exposure for future QE policies. The report gives away the names of several stocks that outperformed with high growth and inexpensive valuation after QE announcements. The focus in growth is on higher operating profits. Highest EBITDA growth is given preference in the below rating, as stocks have shown the best performance in this component year to date. The below list includes equities with at least 10% that have Growth and Valuation metrics in the best or second-best quintile of their sector.
The QE3 program, announced last week, injected a predictable boost in the stock market. Analysts do not expect the tailwind to continue for as long as it did in 2011, primarily because the Fed has sliced its earning forecast for the rest of the year. The Dow Jones Industrial Average was up 2.14 percent as it closed on Friday, the S&P 500 also rose 1.94 percent, and the NASDAQ Composite increased 1.52 percent.