Goldman Sachs Says Stock Picking Becoming Harder But Tesla, Twitter And Etsy Have Potential. Here's Why.

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Topline

With the stock market consistently hitting historic highs and volatility falling steadily—a combination that makes stock picking is more difficult than ever—analysts at Goldman Sachs this week identified a basket of stocks they say have the potential to offer significant upside for investors based on the new dynamics of the market.

Key Facts

Goldman’s analysts identified stocks they say are more likely to move based on  “micro” factors (tax reform, infrastructure spending and company-specific news) rather than “macro” ones (the 2020 election or major stimulus legislation like the CARES Act or the American Rescue Plan).

The analysts identified their picks using a dispersion score, which is a measure of the range of potential returns on an asset based on that asset’s previous returns and volatility. 

The higher the dispersion score, the more sensitive a stock is to company-specific news (like a new CEO or an important development within a particular industry) and the greater the chance it will move enough to give investors an edge in the market.

L Brands, the owner of Victoria’s Secret and Bath & Body Works, took the top slot on Goldman’s list. 

Online retailer Etsy, biotech company Biogen, and Tesla came next, followed by genetic analysis company Illumina, medical device maker Align Technology, and cloud services company Akamai Technologies.

IT provider DCX Technology, social media giant Twitter and Penn National Gaming round out the top ten. 

Crucial Quote

“Stocks with high dispersion scores are more likely to have heightened responses to idiosyncratic, company-specific news (both good and bad) and present the best alpha generation opportunities for investors,” the analysts led by Goldman chief U.S. equity strategist David Kostin wrote. 

Key Background

A robust vaccine rollout, trillions of dollars in government stimulus spending and the coming reopening boom are shoring up investor confidence and propelling the stock market to record high after record high. As earnings season kicks off, data compiled by FactSet shows that first quarter results have been incredibly strong across the board, with 81% of companies in the S&P 500 beating expectations so far.   

Big Number

95%. That’s the portion of S&P stocks that traded above their 200-day moving average last week, according to a recent analysis by the Wall Street Journal—the most since the fall of 2009. That statistic is significant because it means the ongoing bull market is reaching a broad swath of stocks in a variety of industries and isn’t only confined to a small group of tech stocks. 

Further Reading

Dow Closes Above 34,000 For First Time Ever After Blowout Big Bank Earnings And Economic Data (Forbes)

S&P 500 Posts New Record High, Tesla Skyrockets Despite Worse-Than-Feared Inflation Data And Vaccine Concerns (Forbes)

BofA Says Chance Of Global Corporate Minimum Tax Hit Is Rising—Thanks To Biden (Forbes)

98% Of CEOs Say Biden’s Corporate Tax Rate Hike Will Hurt Their Companies, According To Survey (Forbes)