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Goldman Sachs’ U.S. equity strategy team led by David Kostin published a three-part investor plan to allow portfolios to benefit from an eventual economic recovery while protecting assets from potential volatility. The team recommends avoiding small caps, buying stocks with strong balance sheets and reasonable valuations, and also buying economically-sensitive companies that will lead markets when growth returns.

Released Sunday, the research report begins by highlighting the unprecedented nature of the current market environment. They describe the road to recovery as ‘extremely uncertain’ and ‘likely to be uneven’.

The usual cyclical factors that affect the timing and duration of recessions – corporate financial excess and inflation, to name two – are out the window. Instead, “many winners and losers will likely be determined by the ability of businesses to reopen and by the speed of consumer demand normalization.”

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Smaller companies will bear the brunt of the virus-caused economic slowdown and should be avoided according to Goldman Sachs. They note that a survey of 10,000 small companies indicated that half of them would be out of business in three months if the pandemic persists for three months.

The ‘strong balance sheet, reasonable valuations’ portion of the strategy is defensive – designed to reduce portfolio volatility while generating consistent, if unspectacular profit growth. Prominent stocks that qualify include Arista Networks, Mastercard Inc., Regeneron Pharmaceuticals and Alphabet Inc.

As for cyclical stocks, Goldman points to China’s experience with the COVID-19 lockdown: "The reopening experience in China shows that manufacturing and construction activity will likely recover faster than consumer services,” and because of this “we expect goods-producing cyclical stocks will be the primary beneficiaries of the initial restart [in North America]”

The report lists potential buys in this category ranked by year to date returns. It starts with NVIDIA Corp., followed by Intel Corp., Lockheed martin, Keysight Technologies, Ecolab Inc., Air Products and Chemicals, Xilinx Inc. and IDEX Corp.

Goldman Sachs’ diversified, risk-sensitive strategic approach should appeal to a large percentage of investors, providing a balance of downside protection and eventual upside.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

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Stocks to ponder

Shopify Inc. The rise of online retail in a world under lockdown has catapulted Shopify Inc. into the highest echelon of corporate Canada. The Ottawa-based e-commerce company’s stock has caught fire over the past few weeks, rising by 84 per cent in just 15 trading days. With a $107-billion market capitalization, Shopify is now the second-largest publicly traded company in the country, and is quickly closing in on Royal Bank of Canada for the top spot. Will Shopify soon reach the top spot? Tim Shufelt takes a look (for subscribers)

The Rundown

Stocks and bonds are sending conflicting signals about what comes next. Four things investors should know

Feeling baffled by this erratic stock market? You’re not the only one. Security prices always incorporate conflicting views about what lies ahead. Right now, though, the difference in opinions has reached historic proportions. Ian McGugan looks at some conclusions investors can take away from these murky and rather dispiriting times for the stock market. (for subscribers)

Five ‘cornerstone’ stocks to hold through the market turbulence to come

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The continued strong rally in stocks is mystifying. If it holds, this is going be the shortest bear market in history. Gordon Pape doesn’t think that’s going to be the case. As such, he suggests looking for stocks that are likely to at least hold their value during this crisis and will emerge in a stronger position when it’s over. He calls these ‘Cornerstone Stocks.’ They offer products or services that are in high demand (many are essential services), have a sound balance sheet, and pay a sustainable dividend. Here are the five that he recommends. (for subscribers)

Lessons from one of the greatest investors of all time

The investment skills of Hetty Green (1834-1916) earned her the sobriquet Queen of Wall Street in the decades before the first world war. With stocks currently off their highs and possibly headed for another downward tumble (if past bear markets are a guide), it might be a good time to take a look at her contrarian style. Larry MacDonald tells us her story. (for everyone)

Equity valuations rebounding, with bleak earnings a wild card

The sharp rebound in equities has pushed widely used measures of valuing U.S. shares to their highest level in years. Strategists say price-to-earnings ratios could go higher still given monetary stimulus, but huge uncertainty around earnings this year because of the economic fallout from the coronavirus makes for challenges in valuing shares. Caroline Valetkevitch from Reuters reports. (for everyone)

Spotlight falls on ‘dividend aristocrats’ after market tumult

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Companies across a range of industries are slashing or suspending dividends to cope with the economic fallout from the coronavirus outbreak, complicating the stock selection process for money managers eager to buttress their portfolios with a steady stream of income. The past week’s plunge in oil prices has potentially accelerated that process, raising concerns about the rock-steady dividends of companies such as Exxon Mobil and Chevron Corp, which are set to report results on Friday, May 1. Lewis Krauskopf from Reuters reports. (for everyone)

Others (for subscribers)

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Former Dragons’ Den star invests over $1.8-million in this stock

Others (for everyone)

Bullish on Stantec Inc.

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Extreme volatility raises questions over WTI

Globe Advisor

How advisors are adapting to their new reality

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: I have a RIF and a TFSA account. I have contribution room in my TFSA for year 2021 and I will have to start taking the minimum RIF withdrawal starting in 2021.

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So the question: Can I use my mutual funds for the minimum withdrawal amount to transfer “in kind” to the TFSA? In order to make up minimum amount, can I withdraw only part of the mutual fund “in-kind”. For example, I have 100 units of a mutual fund. Can I just transfer out in-kind only 25 units to make up the minimum amount of withdrawal required by RIF Vithal

Answer: In general, I would say yes you can withdraw mutual funds “in-kind” from your RIF in whole or in partial units. Most financial institutions will allow you to take out your RIF payment in any form as long as its total value is equal to the minimum amount you are required. It can be a combination of securities and cash if you choose. While mutual funds may be broken down to the penny, stock holdings - for example - cannot be divided down to less than a single share amount. There may be some institutions that do not have the technical capability to do so, but most can.

Once the mutual fund is withdrawn from your RIF and transferred to a non-registered account, you can then contribute any amount of your mutual fund into your TFSA, as long as you stay within your lifetime or annual limits. Again, it can be all “in-kind” or a combination of investments and/or cash.

You cannot transfer directly from the RIF to the TFSA expecting it will avoid the taxation of that amount. Any amount withdrawn from a RIF is taxable as income.

--Nancy Woods, Vice President, Portfolio Manager and Investment Adviser with RBC Dominion Securites Inc.

What’s up in the days ahead

Gordon Pape will be back later in the week with suggestions on which stocks to continue to hold amid the pandemic - and which ones to fold.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Click here share your view of our newsletter and give us your suggestions.

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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