Goldman Sachs has a basket of stocks with a long track record of beating the market and so far, this year is no exception. While the S & P 500 is on track to finish the year down almost 20%, Goldman’s High Sharpe Ratio basket outperformed that. It’s down just 10% for the year. The basket identifies companies with the highest prospective risk-adjusted returns relative to their sector peers. To find the “Sharpe Ratio,” the firm divides the return of a given stock to the consensus 12-month price target by its six-month option-implied volatility. The median stock in the basket is expected to generate a roughly 36% return, compared to the median S & P 500 stock, which is expected to generate a 14% return. Implied volatility of the median stock in the basket is only slightly higher than that of the median S & P stock (36% vs. 31%). Here are 10 of the stocks: Dish Network , Global Payments , Zoetis and Amazon are among the names with the highest Sharpe ratios, although David Kostin, chief U.S. equity strategist, acknowledges that the returns to consensus price targets for individual companies are “almost certainly much too high.” “For context, at the index level, we forecast the S & P 500 will deliver a roughly flat return in 2023 with the index closing next year at 4000,” he said in a recent note. “Our High Sharpe Ratio basket is constructed based on the relative ranking of stocks within each sector.” Dish has the highest prospective return, 149%, of the stocks in the basket relative to its six-month implied volatility, which is also the highest on the list at 61%. The stock also topped a CNBC Pro list of stocks with big potential upside last week, and others on Wall Street have said Dish is perhaps the “biggest opportunity” for incremental return on investment. Global Payments and Amazon also turned up on that list. Tyson Foods , down about 30% for the year, leads consumer staples in the basket with a Sharpe ratio of 0.8. Citigroup , Mosaic and Boston Properties – also newcomers to the list along with Tyson – are slightly ahead of the food distributor at 0.9. Goldman also added Southwest Airlines and energy stock EQT Corp , both of which have a Sharpe ratio above 1.0.
This Goldman portfolio is beating the market again this year. Here’s what’s in it
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