Equity Opportunities in the Second Quarter of 2015

Q1’s conservative return disappointed U.S. investors, and the outlook for the second quarter is just as unsatisfying.

A combination of plunging oil prices, a long winter, a soaring dollar and modest employment growth led to a modest 1% increase in the S&P 500 in the first quarter of 2015. The conservative return disappointed U.S. investors, and the outlook for the second quarter is just as unsatisfying.

With Q2 upon us, investors need to look for opportunities beyond the traditional indices. At least this is the advice of David Kostin, Goldman Sachs’ Chief U.S. Equity. Kostin estimates that the S&P 500 will grow by only 2% in 2015, so it is important to look for opportunities in other indices. As guidance, the firm’s research lists the sectors and stocks on which they are bullish going forward. Almost a quarter of the 40 stocks and two of the three sectors recommended are part of the iBillionaire Index (IBLN).

Sectors

Goldman Sachs is overweight energy, information technology and telecom and underweight financials, consumer staples, and industrials. According to the firm, health care and consumer discretionary were the two winning sectors in Q1. After our most recent rebalance, the iBillionaire Index includes the consumer discretionary, technology, materials, health care, industrials and energy sectors.

Source: Bloomberg
Source: Bloomberg

Stocks

Goldman’s research also notes 40 stocks with the most upside this year.

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The top stocks include eight companies that are part of IBLN: Priceline, EMC Corp., Monsanto, Actavis, General Motors, Amgen, Delta Airlines, and Chesapeake Energy.

Priceline (NYSE: PCLN)was recently upgrades by Stifel analysts from “Buy” to “Hold”.

EMC Corp (NYSE: EMC) had a harsh Q1 with a negative return of roughly 14%. TheStreet rates the stock as “Buy” going forward based on the company’s strong financials, healthy revenue growth and reasonable debt.

Monsanto (NYSE: MON) shares jumped over 4% earlier this month when the company announce impressive growth in the planting of their genetically modified soybeans.

Actavis (NYSE: ACT) became one of the world’s largest drug producers by sales after the acquiring Allergan last month. 

General Motors (NYSE: GM) is considering spending $1 billion renovating its Technical Center to accommodate new employees focused on electrical engineering, software development and information technology. In addition, the giant is pondering the expansion of its assembly line that produces sporty-utility cars.

Amgen (NYSE: AMGN) announced earlier this month that the European Commission approved their Vectibix product as first-in-line treatment in combination with FOLFIRI Chemotherapy for colorectal cancer (the second most common type of cancer in Europe).

Delta Airlines (NYSE: DAL) has the potential to benefit from lower fuel prices. In this year’s AQR report, Delta was named among the most improve airlines.

Chesapeake Energy (NYSE: CHK) is a potential winner if the energy sector rebounds.

After a modest performance in Q1, David Kostin reminds bullish on U.S. equities this year and emphasizes that American corporations today operate with the best margins they have in history. The high margins are a result of lower taxes, lower interstate rates, outsourcing and new technologies.

The stocks represented in the iBillionaire Index are selected based on the cumulative exposure across the billionaires’ portfolios. This shows that the famed investors placed high bets on seven of the 40 companies recommended by Goldman Sachs. It seems like great minds think alike after all.

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