Goldman Sachs: U.S. economic expansion to continue

In a note from Goldman's David Kostin issued on Tuesday morning, the company says it expects the U.S. economic expansion to continue in important areas such as housing, the labor market, and consumer spending. 

The team is going to keep a close eye on big data releases next week, including ISM manufacturing and one of the most important job reports in a while. Despite its confidence that spillover effects will be limited, Goldman is recommending stocks that have limited exposure to the global turmoil.

 Simply put, firms with high U.S. sales will experience limited impact on their top and bottom line from economic weakness in China. In Exhibit 17 we highlight a list of 25 stocks that have declined in price roughly twice as much as the S&P 500 since the index hit a high in May and also generate nearly all their sales domestically.

• According to the note, stocks with the highest U.S. revenue exposure have been significantly outperforming those with the highest international exposure. Goldman expects this trend to continue. 

Goldman's underdog strategy : buy calls on these stocks in anticipation of an earnings relief rally

Goldman’s clients are being advised to buy call options on 15 stocks in anticipation of an earnings relief rally

At Goldman Sachs, strategists are reminding clients that a very basic strategy can be very profitable. The firm is telling clients that buying calls on stocks underperforming the stock market ahead of earnings has been almost twice as profitable as buying calls on stocks that outperformed the Standard & Poor’s 500 by 3% or more.

Since 1996, this basic trading strategy has outperformed the market 12 of 19 years by an average of 9%.

Goldman is advising clients to buy calls on 15 stocks in anticipation of an earnings relief rally. Stocks include

1. Caterpillar ( CAT )  - Jan 27, before 
2. Danaher ( DHR ) - Jan 27, before
3. Viacom ( VIAB ) - Jan 29, before, 
4. Ryland Group ( RYL ) - Jan 29, before, 
5. Deckers Outdoor (DECK ) - Jan 29, after, 
6. Mattel ( MAT ) - Jan 30, before, 
7. CBRE Group ( CBG )- Feb 3, after, 
8. Ralph Lauren ( RL ) - Feb 4, before, 
9. Lions Gate Entertainment ( LGF ) - Feb 5, after, 
10. Hasbro ( HAS ) - Feb 9, before, 
11. Masco ( MAS ) - Feb 9, before, 
12. Starwood Hotels & Resorts Worldwide ( HOT ) - Feb 10, before, 
13. Time Warner ( TWX ) - Feb 11, before, 
14. NetApp ( NTAP )- Feb 11, after, 
15. Fossil Group ( FOSL ) - Feb 17, after, .

All tickers (change from open, new window):
CAT,DHR,VIAB,RYL,DECK,MAT,CBG,RL,LGF,HAS,MAS,HOT,TWX,NTAP,FOSL

by market cap:
       

John Marshall and Katherine Fogertey, Goldman’s derivatives strategists, recommended February expirations and strike prices that are aligned with the associated stock prices. For example, Fossil is expected to report earnings Feb. 17. The strategist picked the February $99.50 call when the stock was at $99.

Goldman Sachs : 15 cheap stocks for an expensive market

Goldman Sachs doesn't see much standing in the way of more stock-market gains. In a note to clients on Friday, chief U.S. equity strategist David Kostin and his team said they expect the S&P 500 to grind up over the next two-plus years as earnings growth continues, and rolling forward their 12-month price target to 2,000 — 2,100 in 2015 and 2,200 in 2016 are further-out targets. (Note that of the most bearish Wall Street analysts, Deutsche Bank’s David Bianco also thinks stocks are looking pricey, but doesn't see the S&P 500 reaching 2000 until end 2015.)

Kostin and his crew lay out 15 stocks that offer a 25% forward p/e discount versus the S&P 500 median stock, 60% faster 2015 EPS growth and a higher dividend yield of 90 basis points.  Ten of those 15 have also lagged the S&P 500 in 2014.

Five are consumer discretionary:

• Ford F 
• General Motors GM 
• Lowe’s LOW 
• Whirlpool WHR 
• GameStop GME 

Five are materials companies:

• Dow Chemical DOW 
• Freeport-McMoRan Copper & Gold FCX 
• International Paper IP 
• Nucor NUE 
• Avery Dennison AVY 

And rounding up the rest:

• Principal Financial PFG 
• Aetna  AET 
• Eaton ETN 
• Stanley Black & Decker SWK 
• Corning GLW 

***

• finvizcharts (change from open) http://finviz.com/screener.ashx?v=211&ta=0&o=-changeopen&t=F,GM,LOW,WHR,GME,DOW,FCX,IP,NUE,AVY,PFG,AET,ETN,SWK,GLW
• finvizcharts (weekly)  http://finviz.com/screener.ashx?v=211&t=F,GM,LOW,WHR,GME,DOW,FCX,IP,NUE,AVY,PFG,AET,ETN,SWK,GLW&ta=0&p=w&o=-marketcap

• by market cap

Goldman Sachs: reversal candidates for 2014

Goldman Sachs names a slew of cheap, underperforming stocks poised to rise this quarter. Cisco, Ford, more.

• All stocks mentioned below in finviz (day's change): http://finviz.com/screener.ashx?v=211&ta=0&o=-change&t=CLF,DGX,LEN,FDO,JBL,LH,TGT,NFX,DE,DHI,FE,SWK,PWR,CTL,F,ABT,EXC,NE,APA,JNPR,THC,CSCO,ESRX,HSP,ETR,PCG,WMT,EIX,MRO,KSS,FCX,XL,CVX,ATI,AVP,XEL,STI,C,SJM,AA
• finviz - weekly charts  http://finviz.com/screener.ashx?v=211&t=CLF,DGX,LEN,FDO,JBL,LH,TGT,NFX,DE,DHI,FE,SWK,PWR,CTL,F,ABT,EXC,NE,APA,JNPR,THC,CSCO,ESRX,HSP,ETR,PCG,WMT,EIX,MRO,KSS,FCX,XL,CVX,ATI,AVP,XEL,STI,C,SJM,AA&ta=0&p=w&o=-change
• finviz - monthly charts: http://finviz.com/screener.ashx?v=211&t=CLF,DGX,LEN,FDO,JBL,LH,TGT,NFX,DE,DHI,FE,SWK,PWR,CTL,F,ABT,EXC,NE,APA,JNPR,THC,CSCO,ESRX,HSP,ETR,PCG,WMT,EIX,MRO,KSS,FCX,XL,CVX,ATI,AVP,XEL,STI,C,SJM,AA&ta=0&p=m&o=-change

Picking underperforming stocks has not been a winning strategy over the long term. It can, however, succeed in the short term–especially at the beginning of the year and when combined with low valuations.

Goldman Sachs offers 40 stocks, with the caveat that investors should “use this screen as a starting point for identifying stocks likely to reverse 2013 underperformance in 1Q 2014,” not as a blanket recommendation. Potential winners include such big names as Ford (F), Wal-Mart (WMT), Target (TGT), Abbott Laboratories (ABT) and Freeport-McMoRan Copper & Gold (FCX).