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What’s on Goldman’s Volatility Hedges List?

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What's on Goldman's Volatility Hedges List?

The stock market has gotten very volatile, with the S&P 500 down 12% from the start of the year through March 14, and up 7% since.

So what kind of stocks would you be looking for in this environment? Goldman analysts have some ideas.

“With the current macro backdrop/market volatility, we focus on two characteristics to identify companies that should be well-positioned in the market environment,” analysts led by Deep Mehta wrote in a note.

These two factors include defensive financial returns and financial flexibility. Goldman Sachs defines defensive return as the return on cash invested in excess of the company’s weighted average cost of capital. Goldman Sachs defines financial flexibility as a strong conversion of earnings to free cash flow (FCF) or earnings quality.

Companies that have outperformed in both areas include semiconductor giant Broadcom (AVGO) – Get Broadcom Inc. ReportTechnology Consulting Firm Cognizant Technology Solutions (CTSH) – Get Cognizant Technology Solutions Corporation Class A ReportTobacco giant Philip Morris (PM) – Get Philip Morris International Inc. reportWaste disposal company Republic Services (RSG) – Get Republic Services, Inc. Reports And the backbone of health insurance, UnitedHealth (UNH) – Get the UnitedHealth Group Incorporated report.

Goldman analysts rate all stocks a buy.

Reason for purchase

Broadcom “has a strong competitive position in many semiconductor franchises, resilient gross margins and healthy FCF generation,” Goldman said.

For Cognizant Technology, “the company’s efforts to shift its business to higher-value digital products are likely to support growth and profitability,” Goldman said.

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“Pricing is likely to remain relatively stable, with a large presence in India providing structural tailwinds while reducing costs per employee.”

For Philip Morris, “credible product innovation in low-risk products such as Iqos should drive earnings growth and the company is on track to become a majority smoke-free company by 2025,” Goldman said.

Iqos is Philip Morris’ brand of smoke-free products, including heated tobacco and e-vapor products.

“Management plans to introduce innovation at a wider price point

The next few years should also help address affordability issues, driving accelerated growth and gaining more share,” Goldman said.

For Republic Services, growth is key.

“Continued growth in unit profitability and high return on investment in landfill gas and recycling investment paves the way for strong growth ahead,” Goldman said. That growth “may be underestimated”.

Goldman Sachs said UnitedHealth “has a compelling plan for 2022, supported by rising medical loss rates, outperformance in the Optum Health segment and better-than-expected recapture of Covid headwinds in 2021”.

The medical loss ratio measures the amount of premiums used for medical claims divided by administrative expenses. Optum Health provides care through local medical groups.

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