The U.S.-China trade tensions could escalate, with the effects of full-blown trade hostilities likely to impact major stocks. While that is not the scenario, for now, Goldman Sachs has sampled a few stocks it thinks would be safe in the event talks collapse as the new tariffs come into force.
David Kostin the chief U.S. equity strategist of Goldman Sachs told CNBC’s “Squawk on the Street” on Tuesday that it was high time they thought about the boosters of profit growth to move ahead.
For Goldman, the focus is on communication services stocks, with a pinch towards stocks that have “low exposure to “labor costs.” According to Kostin, these stocks are great at “inoculating” traders against any would-be jumps as a result of labor inflation.
Stocks to focus on could also be those with long-term growth strategies, among them dividend growers and services sectors. The companies that are domestically facing are also great.
He further said that stocks like AT&T, usually high dividend-yielding ones, are advisable as they have a continuous flow of income even during market shake-ups.
Likewise, companies like Facebook or Google’s Alphabet have shown themselves to outperform the market as they have very low exposure to the risks of heightened labor costs. They also post outstanding results in situations where the margin headwind is wages.
Goldman’s client portfolio which screens stocks with high dividends, as well as low costs of labor, has set market records in 2019.
Kostin observes that services companies are not affected that much by tariffs as opposed to goods companies.
Trump’s threats to increase tariffs on China goods has made agriculture producers, semiconductors and machinery to be at the top list of companies that suffered losses this week.
Goldman Sachs’ strategist noted that even though the trade-war between U.S. and China violently shook markets causing a high sell-off on Tuesday, it is possible that the tariff hike would not hit companies that hard.
This is because the majority of the companies, among them, utility and telecoms are free from duties.