Goldman Sachs says we’re entering a new, “postmodern” investment cycle. Here’s what the bank thinks is in store — and the stocks investors should own to cash in. The emerging cycle — post the Covid pandemic — is likely to be driven by different economic conditions and priorities, leading to new investment opportunities, the bank said. “We are entering a new ‘postmodern’ cycle in which inflation is a bigger risk than deflation. We are also likely to see greater regionalization, more expensive labor and commodities, larger and more active governments,” Goldman’s strategists, led by Peter Oppenheimer, said on May 9. This will be reflected through higher inflation and greater government spending, Oppenheimer added, while growing environmental, social and governance (ESG) pressures, a focus on decarbonization and geopolitical considerations are likely to result in a move towards greater regionalization and on-shoring. Stock picks So how should investors position themselves for this investment cycle? Oppenheimer believes the focus will shift to companies that are “adaptors,” and can easily adjust their business models, as well as “enablers” and “innovators” — which can boost efficiency by reducing energy and labor costs. The bank also likes companies that are beneficiaries of higher government spending and increased spending on capex. “Many of the companies that are most sensitive to these themes have de-rated in recent months and offer reasonable value as well as attractive growth opportunities,” Oppenheimer said. Stocks in Goldman’s basket of “global CAPEX beneficiaries” include mining firms Rio Tinto and Glencore , logistics giant UPS and U.S defense contractor Raytheon . A host of technology stocks also made the list, including Adobe , Advanced Micro Devices and Micron . Goldman also advised investors to consider companies with high and stable margins. Consumer products, energy, healthcare and utilities were among the sectors with the highest historical 5-year margins, the bank said, and all feature in Goldman’s “high and stable margins” basket. Read more Goldman fund manager reveals ‘massive’ opportunity in tech, says investors are missing 2 stocks Wall Street just had one of its wildest weeks in years. What happened and what could come next Within consumer products, luxury goods companies Hermes and Moncler , as well as tobacco companies Philip Morris and British American Tobacco made the screen. Diamondback Energy and Australia’s top oil and gas firm Woodside Petroleum were among the energy names on the list, while healthcare stock Novo Nordisk and Danish medical devices manufacturer Coloplast also featured. Three utility stocks — one of the best performing sectors this year — were included in Goldman’s basket. They are Canada’s Fortis , American Water Works and Power Grid India. ‘Postmodern’ cycle Goldman said that the new investment cycle will likely see weaker returns, as rising interest rates hit valuations. “We expect a more ‘Fat & Flat’ than a secular bull market with more focus on alpha than beta. Investors are likely to focus more on margins than revenues,” Oppenheimer wrote. Alpha is a measure of investment returns relative to the broader market, while beta measures the relative volatility of an investment. The analysts noted that the approach of looking at the market purely through the “binary lens” of growth versus value is becoming less relevant, and added that, moving forward, the market is likely to be driven by a more eclectic mix of factors and sectors.
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Goldman Sachs says we’re entering a new, “postmodern” investment cycle. Here’s what the bank thinks is in store — and the stocks investors should own to cash in.
