The growth-to-value rotation and reflation trades have dominated market headlines in 2021, while quality and defensive styles have barely been mentioned as their performance continues to lag on a relative basis.
Now, as valuations move in-line with historical norms, investors are beginning to be more discerning about opportunities in the stock market. Because of this, Goldman Sachs and other investment banking peers are recommending clients move into quality names that offer asset productivity, free cash flow conversion, and strong financial returns.
Earlier this week Goldman also raised its full-year household net equity buying forecast, or the amont of money US investors are expected to pour into the stock market, from $350 billion to $400 billion in light of "high cash balances and continued retail participation."
Analysts cited this "renewed strength in retail activity" as a key driver of the ongoing stock picker's summer.
Over the past year, as the stock market recovered from its pandemic woes, picking stocks was relatively easy. The rising tide of the bull market lifted equities to record highs, making selectivity in equity ownership only a fleeting concern for many investors.
Recently, however, the market has become more difficult to navigate. As a result, investors need to protect their hard-earned capital while continuing to make gains in equities by being more selective.
In a June 18 note to clients, Goldman Sachs analysts led by Deep Mehta recommended that investors focus on companies that are set to increase both sales and earnings in the coming years to take advantage of this stock pickers' market.
Insider compiled 30 such stocks, all of which hold "buy" ratings from Goldman and present at least a 10% upside to their current price targets. These top picks also boast 2022 estimated sales and EPS growth greater than 10%.
Of course, not every investor wants to take the risk of picking individual stocks. Thankfully, there are always exchange-traded funds (ETFs) for a more hands-off approach. In its recent note to clients Goldman recommended the iShares MSCI USA Quality Factor ETF as a proxy for quality large and mid-cap stocks.
1. Las Vegas Sands
2. Marriott International
3. Bill.com Holdings
4. First Quantum Minerals
5. Enphase Energy
6. Micron Technology
7. Diamondback Energy
8. Moderna
9. Air Lease Corp.
10. Freeport-McMoRan
11. Advanced Micro Devices
12. Tenable Holdings
13. Hess Corp.
14. Wingstop
15. Boeing
16. Kosmos Energy
17. Ping Identity
18. Schnitzer Steel Industries
19. PulteGroup
Sector: Homebuilders & Building Products
20. Schlumberger
21. Cedar Fair LP
22. PJT Partners
23. Raytheon Technologies
24. PDC Energy
25. Oshkosh
Sector: Machinery & Diversified Industrials