- Passive investing in broad market indexes has been a solid strategy in recent years.
- Experts have their doubts about the tactic today, and say picking individual stocks will matter more.
- Goldman Sachs says these 18 stocks have upside of at least 50% over the next year.
Experts have been saying it over and over for a year or so: It’s a stock picker’s market now.
They mean that after many years of strong performance for major stock indexes, where investors could buy the S&P 500 or Nasdaq composite and almost certainly end up satisfied with their long-term returns, individual stocks are likely to do better than the broader market from here.
Broad market exposure worked very well in the wake of the COVID-19 crash, as stocks in general have made a dramatic comeback from their lows. But that dynamic has faded in recent months, with the market stagnating while stocks with exposure to spiking energy or commodity prices outperform dramatically.
While the economy continues to expand and unemployment reaches historic lows, investors are nervous about dark clouds on the horizon.
“Uncertainty surrounding monetary policy, elevated inflation, and impacts stemming from Russia’s invasion of Ukraine has weighed on the index since the start of the year,” said David Kostin, chief US equity strategist for Goldman Sachs. “Slower domestic and global growth paired with higher commodity prices should continue to pose a risk to earnings and margins.”
But many of those dynamics are helpful to certain stocks even if they’re troubling for the economy or for the market in broad terms. Kostin and his team at Goldman recently put together a list of the stocks that the firm’s analysts believe have the most upside on the S&P 500 over the next 12 months.
It’s a group that is highly exposed to consumer spending, economic reopening, and to further growth for the industrial sector. Goldman’s analysts think all 18 of these companies have upside of at least 50% based on their price targets. The stocks are ranked from lowest to highest based on that upside, as measured from Thursday’s closing prices.
