Goldman Sachs (NYSE: GS) has a new game plan for surviving the US-China trade standoff and it’s all about the business next door. In a recent note to investors, Goldman advised their clients to augment their portfolios with American-based service providing businesses.
“Service stocks have less exposure to trade conflict given they have lower foreign input costs that might be subject to tariffs and lower non-US sales than goods firms,” Goldman Sachs’ chief US equity strategist David Kostin said in a note to clients.
The negotiations between the two states hit a snag after President Trump’s sudden announcement last week of a 10 percent tariff on $300 billion of outstanding Chinese goods that had previously not been subject to custom duty.
President Xi Jinping responded in kind by suspending all agricultural imports from the United States. Markets experienced their worst day so far this year on August 5 after China’s currency fell below the 7-yuan-per-dollar mark – an exchange low that hasn’t been seen since 2008.
A consensus is building amongst those on Wall Street that the trade war will continue on until at least the 2020 presidential election. Those looking for good investment options while market conditions remain unpredictable can look to these GS-approved blue-chip tech stocks.
Amongst their chosen selections for the discerning investor, Goldman Sachs gives the nod to tech giants Microsoft, Amazon, Facebook and Verizon. Analysts pointed to Microsoft as a solid, large-cap stock with minimal exposure to Chinese influence. In addition, enterprise software companies like Microsoft are predicted to weather market ups and downs better than other kinds of businesses.
Another top contender is Verizon Communications, a provider of wireless services, converged communications, information & entertainment services and integrated business solutions both domestically and internationally. Goldman Sachs price target for the company is set at $67 while the posted consensus target was last seen at $59.64. Current investors also received an impressive 4.32 percent dividend payout. Experts believe business is good and the future looks positive for the telecom.
Other service-providing firms like Facebook and Amazon were chosen for their speedier sales and earnings growths and more stable margins than goods-producing companies like Apple. Kostin noted that services stocks outpaced goods-based stocks by 530 basis points in 2019 and 150 basis points in the third-quarter.
“They’re a safe haven right now,” Rishi Jaluria, senior research analyst at D.A. Davidson, said in an interview. “Software names are not exactly recession proof, but they’re more resilient to downturn.”
On top of Goldman Sachs endorsement for tech firms focused on delivering services, the software industry has its own particular allure for investors. IT holds the highest net margin of any sector and lower interest rates bode well for higher valuation businesses as investors will have their eye on earnings.
“Ultimately investors don’t see many sectors that are as attractive over the longer term,” Nick Colas, co-founder of investment research firm DataTrek, said about the tech sector. “It’s hard to get too bearish on tech, even with everything going on.”
Sources:
https://www.cnbc.com/2019/08/09/investors-are-buying-up-these-tariff-proof-tech-stocks-to-keep-exposure-to-the-sector.html?__source=newsletter%7Ceveningbrief
https://www.msn.com/en-us/money/companies/goldman-sachs-says-buy-these-service-provider-stocks-for-ongoing-trade-war/ar-AAFH9yV
https://www.cnbc.com/2019/08/12/goldman-has-a-new-strategy-for-beating-the-market-during-the-trade-war.html?__source=newsletter%7Ceveningbrief
https://www.cnbc.com/2019/08/06/investors-can-hide-out-in-domestic-stocks-from-the-china-trade-war.html
https://www.npr.org/2019/08/05/748155575/chinas-currency-falls-to-lowest-exchange-rate-in-11-years
https://www.msn.com/en-us/money/markets/investors-are-buying-up-these-tariff-proof-tech-stocks-to-keep-exposure-to-the-sector/ar-AAFzzJv
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
