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Goldman’s Vaccine Stocks May Prove Unhealthy for Your Portfolio

Last Updated September 23, 2020 2:28 PM
Andrew Packer
Last Updated September 23, 2020 2:28 PM
  • As several Covid-19 vaccines reach trial, some traders are betting on a return to normal.
  • Many of these stocks are outside the big tech names that have dominated markets.
  • With valuations already high, sector rotation won’t do much to move the market higher.

The market rally of the past few months has been dominated by technology , healthcare, consumer staples, and any company with a powerful work-from-home trend. As Covid-19 vaccines reach trial, however, that trend in stocks may shift.

The Case for New Stocks to Lead as Markets Rotate

If that’s the case, several different stocks could be market winners over the next few months as tech shares take a breather. That’s the view of Goldman Sachs, which gave clients a list of more off-the-radar names likely to perform well  going forward.

Their view is broken up into four groups. First are companies that sold off but should recover on a return to a pre-pandemic sense of normal. The second are companies that may have benefitted from the pandemic but need markets to remain open. The third includes stocks focused on the global recovery. The last group focuses on long-term winners that may still have some short-term woes.

It’s a diversified mix of stocks, and it’s based on the solid logic of investors taking profits out of sectors that have done well.

Market Rotation
All sectors of the market have moved higher since March, but some areas have wildly outperformed others. | Source: CNBC 

This market rotation could lead to some lagging stocks moving higher; if tech stocks don’t drop too much from here, rotation could help push the market even higher.

Valuation Remains a Wild Card

There’s one area being overlooked with Goldman’s potential recovery plays: Market valuations have soared, and many of these stocks are already well off their March lows.

Case in point, consider The Walt Disney Company, a Goldman favorite right now. The media and entertainment giant has shut down its cruise ships and theme parks. Shares dove from a peak of $150 to around $80 in March. Now they’ve rebounded to $130, or about 15% off their pre-pandemic peak.

DIS 1 Year
Disney shares have recovered most of their pandemic-related drop, even as many of its cash-generating theme parks remain closed. | Source: Yahoo Finance 

With some of their theme parks open at limited capacity, Disney’s revenues and income are substantially off, and operating costs have risen. While the share price has been flat over the past year, the company’s price-to-earnings ratio has soared from a low of 17 in the past year to over 50 today. 

Yet that’s one of the companies on Goldman’s list that is likely to bounce even higher.

Another company, agricultural machine manufacturer Caterpillar, has seen massive drops in sales over the past decade . Yet that company is also being touted as a global recovery play. Yet it’s more likely that farmers will make do with what they have for longer right now.

Yes, many non-tech stocks remain below their pre-pandemic peak. And markets have a history of rotating between sectors  during a bull market. With many of these underperforming stocks still well above their March highs, there isn’t much of a rally left.

This may be another case of Goldman putting its interests ahead of its clients  and trying to move the markets in a way the investment bank finds favorable.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds investment positions in Disney stock.