According to a recent Goldman Sachs study, mutual funds are heavy on equities, but solid quality companies have been added in the second quarter.
“Overweight exposures to Value and small-caps have aided performance YTD, but managers have reduced exposure to these factors in favor of adding low volatility, high return on capital, and strong balance sheet equities,” Goldman analysts led by Cormac Conners and David Kostin wrote in a note Monday.
Value stocks are those that trade at prices that are perceived to be relatively low in relation to their returns. Many value names are associated with cyclical industries that are often linked to the economy.
Many cyclical stocks appear on Goldman’s list, including General Motors, General Electric, and Morgan Stanley.
Target, Match Group, and Allstate are among the new names added to Goldman’s basket in the second quarter.
According to Goldman, Visa is the stock most heavily weighted in mutual funds when compared to its benchmark. By 24 basis points, the name is overpriced. A basis point equals 0.01 percent.
TJX Companies, Lowe’s, and UnitedHealth Group are among the other stocks heavily held by mutual funds.
As of Thursday, Goldman’s mutual fund overweight positions basket was up 20%, compared to the S&P 500′s 18% gain during the same period.
Tesla and Moderna are the preferred stocks
After the devastating meme stock crash earlier this year, Hedge Fund’s short books came back. Here is an overview of their most popular short goals.
According to Morgan Stanley prime brokerage data, the short side of hedge funds’ portfolio generated the best alpha since 2010, and it is now outperforming the long side of their strategies.
The rebound came after a difficult first quarter in which retail investors drove up a slew of heavily shorted stocks, including GameStop and AMC Entertainment, inflicting significant pain on short-selling hedge funds.
As an estimate of hedge fund short portfolio holdings, Goldman Sachs compiled a list of S&P 500 stocks with the highest total dollar value of outstanding short interest. The basket excludes hedge funds’ preferred long positions as well as stocks with more than 10% of float-adjusted shares held short in order to provide sufficient liquidity for traders.
According to Goldman, Tesla is the largest short position held by hedge funds.
Michael Burry of Scion Asset Management, a “Big Short” investor, was one of the most vocal Tesla detractors. While it is unclear whether Burry is shorting Tesla, he did own $730 million in put positions against the company as of the end of June.
Hedge funds are also interested in shorting Moderna. Professional speculators may be betting on a pullback following the company’s massive rally this year due to the distribution of its Covid-19 vaccine.
In 2021, Moderna’s stock has increased by approximately 277 percent. Earlier this month, the pharmaceutical company reported higher-than-expected second-quarter earnings and revenue, as well as the fact that its coronavirus vaccine is 93 percent effective after six months.
Hedge funds are also betting against Aon, the insurance broker. The company and Willis Towers Watson abandoned their merger last month to form a massive global insurance broker and consultancy after the Justice Department filed an antitrust lawsuit against the deal.
Some of the hedge funds’ biggest short bets include Netflix, Home Depot, IBM, and JPMorgan.
Analysts identified the Nasdaq stocks that are popular on Wall Street and that analysts believe can continue to rise from here.
We looked at the Nasdaq-100, the top 100 non-financial companies in the Nasdaq Composite, and screened for stocks that have at least 70% of analysts recommending them. We then identified the stocks with a 10% or greater implied upside based on consensus 12-month price targets.
On Tuesday, Amazon had the greatest positive impact on the Nasdaq Composite, with its 1.2 percent gain lifting the index 14 points. The e-commerce behemoth is also expected to lead the Nasdaq higher, with analysts predicting a 26 percent increase in the stock over the next year. Amazon also has the highest screen ratings, with 83.3 percent of analysts calling it a buy.
Peers in Big Tech feature Facebook and Alphabet, the parent company of Google. According to Wall Street, the stocks will rise 14.7 percent and 12.7 percent, respectively.
Micron Technology has the most implied upside on the list. The stock has underperformed the Nasdaq this year, falling more than 3% in 2021, but analysts expect Micron to rise 63.6 percent in the next year.
According to Hans Mosesmann of Rosenblatt Securities, the semiconductor company is benefiting from demand for dynamic random access memory chips used to power artificial intelligence. According to Mosesmann in an August note, Micron has also strengthened its products in segments such as data center, PC, mobile, and auto.
PayPal, a digital payments company, is also on the list. PayPal shares have dropped nearly 10% in the last month after the company reported lower-than-expected second-quarter earnings in July. The transition of online marketplace eBay off its platform is causing a “short-term drag” on growth, according to the company, but the change will be completed by the end of the third quarter.
Goldman Sachs’ best stock ideas
Analysts said in an Aug. 17 note titled “Post-Earnings Summary of Our Best Ideas” that it had been a strong earnings season for companies on Goldman’s natural resources conviction list, “with the average stock returning + 10% since our refresh note on July 19, 2021, vs. the S&P +5%.”
The analysts, led by Neil Mehta, added oilfield services company Baker Hughes to their list of convictions, stating that they have a “high degree of confidence” in the company. “We see Baker Hughes as a key enabler of the energy transition, with differentiated products in LNG [liquified natural gas], hydrogen, and carbon capture – but trading at an attractive valuation discount to our price target,” said the analysts.
Marathon Petroleum is still on the list of people who have been convicted. “The company is well-positioned to return an outsized amount of capital to shareholders, including $9 billion in incremental share repurchases over the next 12-16 months,” analysts wrote.
Goldman analysts see “attractive upside” for electricity firm NRG Energy due to its “strong” free cashflow and “robust” capital allocation in utilities and power. They also like NextEra Energy Partners because of its exposure to renewable energy, describing it as a sector winner. Both are still on Goldman’s list of convicted felons.
Goldman’s midstream picks are Targa Resources and Cheniere Energy, both of which are involved in oil storage and processing. Cheniere Energy was singled out by analysts for its “significant” debt reduction potential over the next two to three years, as well as its buyback program, which is set to run for several years.
“[Analyst] Brian Lee argues that the risk/reward for NOVA is compelling, especially following a strong quarter where management reaffirmed its 2021 customer growth and raised 2022 customer growth to 50 percent yoy [year-over-year] (vs. 40 percent prior),” the research note stated. The stock is still on Goldman’s list of convictions.
In metals and mining, Goldman chose Alcoa, a “deeply discounted” aluminum producer, as a “energy transition winner,” citing the need for such metals as a component of electric vehicles, for example.
Suncor, a Canadian crude oil producer, was removed from the bank’s conviction list, though the stock is still rated buy.
Analysts said in an Aug. 17 note titled “Post-Earnings Summary of Our Best Ideas” that it had been a strong earnings season for companies on Goldman’s natural resources conviction list, “with the average stock returning + 10% since our refresh note on July 19, 2021, vs. the S&P +5%.”
The analysts, led by Neil Mehta, added oilfield services company Baker Hughes to their list of convictions, stating that they have a “high degree of confidence” in the company. “We see Baker Hughes as a key enabler of the energy transition, with differentiated products in LNG [liquified natural gas], hydrogen, and carbon capture – but trading at an attractive valuation discount to our price target,” said the analysts.
Marathon Petroleum is still on the list of people who have been convicted. “The company is well-positioned to return an outsized amount of capital to shareholders, including $9 billion in incremental share repurchases over the next 12-16 months,” analysts wrote.
Goldman analysts see “attractive upside” for electricity firm NRG Energy due to its “strong” free cashflow and “robust” capital allocation in utilities and power. They also like NextEra Energy Partners because of its exposure to renewable energy, describing it as a sector winner. Both are still on Goldman’s list of convicted felons.
Goldman’s midstream picks are Targa Resources and Cheniere Energy, both of which are involved in oil storage and processing. Cheniere Energy was singled out by analysts for its “significant” debt reduction potential over the next two to three years, as well as its buyback program, which is set to run for several years.
“[Analyst] Brian Lee argues that the risk/reward for NOVA is compelling, especially following a strong quarter where management reaffirmed its 2021 customer growth and raised 2022 customer growth to 50 percent yoy [year-over-year] (vs. 40 percent prior),” the research note stated. The stock is still on Goldman’s list of convictions.
In metals and mining, Goldman chose Alcoa, a “deeply discounted” aluminum producer, as a “energy transition winner,” citing the need for such metals as a component of electric vehicles, for example.
Suncor, a Canadian crude oil producer, was removed from the bank’s conviction list, though the stock is still rated buy.
