ResMed has risen 6.3 per cent so far this year. However, it’s more than 10 per cent lower than a year ago and the stock has swung up and down repeatedly over the last 12 months.
Goldman said stable stocks have historically outperformed in periods of decelerating economic growth, but market pricing does not reflect the current economic slowdown.
“Our economists see greater downside risks than upside risks, suggesting ample opportunities for stable stocks to outperform.”
That’s because the Goldman strategists said stable stocks are trading at “undemanding valuations” and should outperform in a challenging macro environment.
Since 1985, the typical constituent of Goldman’s Stable Growth basket has averaged a 16 per cent valuation premium to the median S&P 500 stock, the strategists said, adding that today the median stock trades at a 12 per cent premium.
Goldman’s warning: “The main risk to owning stable stocks is if economic growth proves to be more resilient than we expect, but low valuations, poor recent performance, and elevated recession risk mean the risk/reward is asymmetric.
”Our markets strategists noted that the resilience in the equity market can be explained by a concentrated growth drag, with spillovers limited to certain segments of the economy but big enough to deliver a dovish shift in Fed policy.
“However, unless bank stress significantly changes the economic outlook, the Fed’s goal will remain to keep demand growth positive but below potential given that inflation is still elevated relative to their long-term 2 per cent target.”
Goldman’s Stable Growth basket consists of the 50 Russell 1000 stocks with the most stable earnings before interest, tax, depreciation and amortisation [EBITDA] growth during the past 10 years. The median stock in the basket has a market cap of $US36 billion and performance has been flat year-to-date.
