Financial Services

This year's losers will be next year's winners, Goldman's Kostin says


That includes companies with strong balance sheets, stable sales and good after-tax earnings. Energy and financials, two underperformers in 2018, are in position to post the best risk-adjusted returns next year.

Kostin specifically focused on companies that have high “Sharpe Ratios,” a measure that gauges a stock’s return against its risk. A basket Goldman put together has seen a 19 percent median loss in 2018 that history has shown will reverse. The strategy has topped the S&P 500 return 68 percent of the time over six-month periods since 1999, with an average excess return of 3.1 percentage points.

Stocks with the highest Sharpe Ratios include Newfield Exploration, News Corp, Nektar Therapeutics, Schlumberger and Haliburton.

Broadly speaking, Goldman has a 3,000 price target on the S&P 500 for the end of 2019. While the firm considers that a “low” return, it actually implies a nearly 14 percent return from Friday’s close. However, it indicates just 5.3 percent upside from the firm’s 2,850 target for the end of 2018.

Kostin said the market currently is below levels consistent with “a more substantial slowdown in growth than we expect.” The firm sees GDP expanding at a 2.5 percent pace in 2019 and corporate earnings rising 6 percent.

Utilities and health care are also likely to benefit from the environment ahead, he said.



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