Stocks are stumbling as economic growth slows and the Federal Reserve tightens financial conditions. The S&P 500 has dropped 13% this year.
So what’s an investor to do?
“For investors seeking to own ‘quality’ themes in a decelerating growth and tightening financial conditions environment, we recommend owning stocks with stable growth,” Goldman Sachs strategists wrote in a commentary.
“Stable growth stocks and minimum volatility strategies typically outperform as economic growth slows and financial conditions tighten, and carry undemanding valuations.”
Minimum volatility stocks, as measured by the Invesco S&P 500 Low Volatility ETF (SPLV), have outperformed the S&P 500 by 6 percentage points year to date.
And Goldman’s Stable Growth basket of stocks has outperformed by 2 percentage points, “more clearly reflecting investor concern about recession and financial conditions risk than the strong-weak balance sheet pair,” the strategists said.
Goldman’s Stable Growth basket includes:
· Comcast (CMCSA), the media/telecommunications giant;
· Alphabet (GOOGL), the search and advertising stalwart;
· Domino’s Pizza (DPZ), the pizzeria chain;
· Home Depot (HD), the home improvement titan;
· PepsiCo (PEP), the food and beverage behemoth;
· Marsh & McLennan (MMC), the professional services firm;
· Johnson & Johnson (JNJ), the healthcare products giant;
· Oracle (ORCL), the software titan;
· Cisco Systems (CSCO), the network technology major; and
· Visa, the credit card behemoth.
Morningstar’s Take on Comcast...
Morningstar analyst Michael Hodel assigns the Comcast a wide moat and puts fair value for the stock at $60, 43% above a recent quote of $42.31.
“Comcast’s core cable business, which accounts for more than half of the firm’s value, enjoys significant competitive advantages. But [it] will likely see growth slow, as competition for incremental customers heats up,” he wrote in an April 28 commentary.
“NBCUniversal isn’t as well positioned. But [it] holds unique assets, including core content franchises and theme parks, that should help the transition away from the traditional television business.”
So, “overall, we expect Comcast will deliver modest growth with strong cash flow for the foreseeable future,” Hodel said.
...and on Alphabet
Morningstar analyst Ali Mogharabi gives the company a wide moat and puts fair value for the stock at $3,600. It recently traded at $2,342, about 54% below that valuation.
“Alphabet dominates the online search market, with Google’s global share above 80%,” he wrote in an April 8 commentary. That enables it to “generate strong revenue growth and cash flow,” he said.
“We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in the search market.” Meanwhile, YouTube will account for more of Alphabet’s revenue and profit, Mogharabi said.
“And we view investments of some of that cash in moonshots as attractive. Whether they will generate positive returns remains to be seen, but they do present significant upside.”
The author of this story owns shares of Comcast, Alphabet, PepsiCo, Johnson & Johnson and Cisco Systems.
