The analysts at Goldman Sachs don't have a crystal ball. They can't predict the future 100% of the time accurately. While they aren't always right, Goldman analysts are influential, and like analysts at hedge funds and other smart money funds, they are the among the best intellectually and resume wise. In this article, let's analyze 5 stocks that Goldman Sachs believe will be relatively unaffected if the trade war with China continues. Let's also analyze how the smart money is positioned among the funds.
Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
AT&T Inc. (NYSE:T) is a services stock, a sector that Goldman thinks will be less sensitive to potential tariffs than compared to the goods sector or even retail sector. Given AT&T's attractive yield that provides a steady source of income, investors are potentially less apprehensive about the stock than Boeing, which sells a lot of planes in China. AT&T also has potential in streaming and investors will look forward to the future Game of Thrones spin offs. Of the around 700-740 elite funds we track, 56 funds owned $1.85 billion of AT&T Inc. (NYSE:T) on December 31, versus 70 funds and $3.76 billion respectively on September 30.
Goldman also likes tech 'services' companies such as Alphabet Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB). Goldman writes, 'Services stocks have less foreign input costs that might be subject to tariffs and are also less exposed to potential trade retaliation.' Facebook doesn't have any meaningful users in the country due to government bans. Alphabet's Google left China and also doesn't have meaningful market share. Although Google might come back to China, the market hasn't really paid too much attention to it as much as to Alphabet's other potential moves.
According to our data, 161 elite funds were long Facebook Inc (NASDAQ:FB) and 141 top funds owned shares of Alphabet Inc (NASDAQ:GOOG) at the end of the fourth quarter.
Goldman also likes shares of fellow banks such as JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corporation (NYSE:BAC). Both are arguably in the services sector and besides capital market and indirect exposure, both don't have as much exposure to China as a company like Apple does, which imports iPhones from China and potentially faces retaliation from the government if things get worse. Bank of America recently announced that it is increasing its hourly minimum wage to $17 on May 1 2019 in a move that could boost productivity. JPMorgan's April credit card delinquency rate fell 5 basis points to 1.18%.
Of the around 700-740 elite funds we track, 101 funds owned $10.02 billion of JPMorgan Chase & Co. (NYSE:JPM) on December 31, versus 99 funds and $11.44 billion respectively on September 30. 99 elite funds were long Bank of America Corporation (NYSE:BAC) as of the most recent 13-F reporting period.