Goldman Sachs' Chief U.S. Strategist, David Kostin, recently pitched fifteen stocks they felt were worth buying in the present environment. It is interesting that the selection includes as many as five stocks from the materials sector and five from the consumer discretionary sector. In addition there are two picks from the financial services sector [I am classifying Aetna (NYSE:AET) as a financial/insurance pick], two picks from the industrial sector, and one from the technology sector.
The cyclical stance adopted is very interesting: you can read an interesting article from Fidelity on the business cycle here. The materials sector tends to perform best early in the business cycle, as do the financial and consumer discretionary sectors. Unlike the financial and consumer discretionary sectors, the materials sector tends to return to a period of outperformance late in the business cycle, after a pause in the mid-cycle. The industrial and technology sector tends to outperform in the early and mid-cycle. Interestingly, the list does not offer any picks from the energy sector. The energy sector is noted as one which underperforms in the early cycle, and displays outperformance in the late cycle. There is not a single stock from the defensive (healthcare, staples, utilities or telecom) sectors included in the selection. This selection signals a strongly pro-cyclical stance, with conviction that the global economy is facing early (not mid) business cycle conditions.
Source: Wall Street Journal Blog
I don't see U.S. as being in the early phase of its business cycle, and so my initial reaction was "a nice selection, but a terrible portfolio".
On the other hand, while the U.S. business cycle may well be in the mid/late phase, the global business cycle which is lagging could well be seen to be in the early phase of the business cycle. The selection of stocks is from amongst large capitalization stocks which are very strongly influenced by the global business cycle - perhaps more than the U.S. business cycle: and so maybe a pro-cyclical stance is not such a bad idea after all.
Additionally, while there are no stocks from defensive sectors in the selection, Goldman does nod to the need for defensive characteristics through its focus on large capitalization stocks with "higher growth, lower valuation and better yield than peers". Large capitalization, well valued stocks offering a decent dividend yield do offer fine defensive characteristics.
Using the AOM system, which you can read more about here and here, from the Goldman Sachs selection, Aetna, Corning (NYSE:GLW), Dow (NYSE:DOW), Eaton (NYSE:ETN), Ford (NYSE:F), Freeport-McMoRan Copper & Gold (NYSE:FCX), GameStop (NYSE:GME), International Paper (NYSE:IP), and Principal Financial Group (NYSE:PFG), all look good at a first glance and carry a buy rating. The rest can't be said to look bad: they carry a hold rating.
Overall, it is a decent enough selection, but I'd like to add some picks from the energy [Ensco (NYSE:ESV)], health [Johnson & Johnson (NYSE:JNJ)], telecom [Verizon (NYSE:VZ)], utilities [Consolidated Edison (NYSE:ED)] and consumer staples [Wal-Mart (NYSE:WMT)] before I'd be happy to call it a good portfolio.
Disclosure: The author is long JNJ, VZ, WMT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.