Goldman Sachs isn't taking a position on the stock market.
Last week, the Wall Street investment bank moved from a defensive position in equities to neutral with a late-cycle mix. The biggest concern remains Europe. While the LTRO (long-term refinancing operations) agreements and funding actions by the European Central Bank have helped to reduce some of the concern, Goldman Sachs chief strategist David Kostin says risks of a decline still "remains so significant that it impairs fundamental investment decisions."
A better-than-expected January jobs report, robust fourth-quarter GDP growth of 2.8 per cent and positive signs from the manufacturing sector weren't enough to make the Goldman Sachs strategy team more positive in their market positioning. Risks related to the presidential election and concerns of a deceleration in GDP to 2 per cent are prompting Goldman to temper its bullishness.
The turmoil over the Greece debt situation helps support the neutral thesis, and is largely why the market is trading down today. Pressures have mounted for Greek officials to come to an agreement on austerity measures in order to receive the needed funding. Late this afternoon Administrative Reform minister Dimitris Reppas said budget cuts will come either by abolishing or downsizing a number of public sector bodies.
Kostin said the strategy team will only get more constructive if its below-trend outlook for growth proves accurate or too conservative.
With that backdrop, Goldman is moving to an "overweight" recommendation in the energy sector from "neutral" and also recommends buying the technology industry.
Current dynamics of the energy sector make it an attractive investment from a risk-reward perspective, according to Goldman. Demand should outweigh supply going forward and tension in the Middle East leave risk to the upside. Also, Goldman points out that energy stocks are pricing in an oil price below the current spot price.
Global information technology spending is expected to slow over the next few years, but will still grow at a low- to mid-single-digit rate. Goldman prefers investing in the software and services subsectors of the information-technology industry, which will benefit from the proliferation of smartphones, tables, cloud computing and increased e-commerce activity. The dividend-growth characteristic of the group is also attractive. Goldman anticipates dividends will rise 21 per cent in 2012.
Below are the six energy and technology stocks Goldman recommends buying and are included in the America's Conviction List.
6. Exxon Mobil Exxon has a $96 (U.S.) price target, representing 13 per cent upside from where the stock closed Friday. Goldman likes the oil and gas company because of its commitment to returning cash to shareholders and its improved production outlook. The stock is trading at 9 times its earnings per share estimate of $9.10 in 2012, which Goldman sees as inexpensive.
5. Halliburton Halliburton has a price target of $50, a 36 per cent increase from its closing price Friday. Increasing margins in the international business, a bottoming in natural gas prices and the potential for North American margins to come in better than expected make the oilfield-services company an attractive opportunity, according to Goldman.
4. Apple A price target of $600 implies stock upside of 31 per cent for the iPhone and iPad maker. Likely catalysts such as a possible late-March iPad refresh with a lower price point on the iPad 2, a mid-year iPhone refresh, and the launch of the iOS-based television launch in late 2012 or early 2013 back up the positive rating for the company.
3. Oracle Oracle has a price target of $35, representing a 20 per cent increase from where the stock closed Friday. The company's disciplined approach to operating expenses helps protect margin downside in an uncertain economy. Goldman also expects the technology company to make up for deals that slipped out of the last quarter in the current quarter and views management's license growth as conservative.
2. Qualcomm Qualcomm is expected to appreciate 18 per cent to $72 based on Goldman's price target. The chipmarker is positioned to benefit from high demand for handsets from customers like Apple and share gains in the chipset market.
1. Visa Visa has a price target of $114, a 6.5 per cent increase from Friday's closing price. The payment processor will benefit from the continued secular shift to electronic payments, strong global growth and traction in emerging payments. Goldman also favors the company's positioning in the emerging payments market, including mobile, prepaid and e-commerce.