A recent investment report from Goldman Sachs Portfolio Equity Research highlights one macro and 15 micro investment ideas through the end of 2014. In the September 4th report, Goldman Sachs analysts David J. Kostin and colleagues argue that the S&P 500 (INDEXSP:.INX) will reach 2050 by year, and given the just-announced accomodative monetary policy changes, that the Euro will tumble close to 10% relative to the U.S. dollar over the next year or so.
Macro idea — weak euro means firms with U.S. exposure likely to do well
The GS report suggests that companies with strong U.S. sales are the place to be for the next few quarters as the euro takes a tumble. Goldman’s economists are anticipating a 9% fall in the euro over the next 12 months, and a 30% drop by the end of 2017. Kostin et al. argue that their sector-neutral basket of 50 stocks with high U.S. sales exposure will outperform businesses with high European revenue exposure.
Goldman-Sachs top 15 stock picks through year-end 2014
Goldman’s equity analysts suggest three strategies for stock picking with “historical precedent” for the best returns over the next four months.
1. High beta, U/S. sensitive stocks will do well as the S&P 500 moves up in 4Q. Kostin et al. suggest considering Goldman’s Dual Beta basket (Bloomberg: GSTHBETA) that includes 50 stocks on a sector-neutral basis.
2. High price momentum stocks with strong returns year to date will probably outperform the general indices as investors try to ride “what’s working” to boost near-term profits.
3. Related to 2, popular stocks are also likely to do well as funds add to existing positions which are already outperforming in 2014. Goldman’s Hedge Fund VIP list (GSTHHVIP) and Mutual Fund Overweight list (GSTHMFOW) highlight the 50 stocks most popular among fund managers.
The Goldman Sachs analysts explain their thought process for their top picks below. “Most mutual fund and hedge fund managers have struggled in 2014. We believe investors will be compelled to add long exposure to existing positions in an attempt to boost returns before year-end. Guided by historical 4Q patterns following weak fund performance, we highlight 15 Buy-rated S&P 500 stocks that should benefit from a combination of beta, momentum, and fund popularity.”
