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8 Stocks Goldman Sachs Says Will Deliver The Best Returns As Volatility Looks Set To Continue

Stocks like these 8 may be investors’ best bets as volatility rocks the market.

For the sixth time in nine days, the U.S. reported a record number of new confirmed coronavirus cases on Thursday with at least 55,220 new cases.


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Florida reported 10,109 new COVID-19 cases Thursday, marking a new single-day record, while Georgia and several other states also reported a record number of new cases. 

The Labor Department said today that the U.S. economy added 4.8 million jobs in June, sending the unemployment rate down to 11.1%. But while stocks initially jumped higher on the big jobs number, the market cut its gains as the reality of the surge in new coronavirus cases set in.

This whipsawing in the market is nothing new as the pandemic and the ensuing economic fallout have sent stocks on a wild ride. And according to Goldman Sachs, this trend of high volatility and low risk-adjusted returns are likely to linger for the next few months.

“Consensus expects 9% upside to the typical stock over the next 12 months and volatility should remain elevated through the rest of the year, suggesting low risk-adjusted returns in the coming months,” Goldman strategist wrote in a note out this week. 

Given these circumstances, the Goldman strategists added 31 stocks to the firm’s high Sharpe ratio basket, including health care, media, information technology services, and aerospace and defense industry stocks.

The Sharpe ratio is calculated by dividing a stock’s expected return on investment in excess of the risk-free rate by the standard deviation of that return. For example, if there are two stocks with the same expected return, the one with less volatility has a higher Sharpe ratio and thus is a more attractive investment compared to a stock that could generate the same return by not without the potential for higher volatility.

Historically, Goldman’s high Sharpe ratio basket has outperformed the S&P 500 in 66% of semiannual periods since 1999 by an average of 2717 basis points. While the basket has underperformed the S&P 500 by 591 basis points so far this year, the strategists attribute the performance to the basket’s tilt toward value stocks.

Still, the high Sharpe ratio basket outperformed the index in May and early June as the economy improved and stocks shot higher but has lagged behind the S&P 500 since then amid fears over a surge in cases.

Coca-Cola (NYSE: KO), Comcast (NASDAQ: CMCSA), General Motors (NYSE: GM), and Mondelez (NASDAQ: MDLZ) are among the existing members of the high Sharpe ratio portfolio. 

Goldman said in the note that the 31 added stocks now give the basket superior prospective returns for the S&P 500. Some of the new names in the basket include Concho Resources (NYSE: CXO), Merck & Co (NYSE: MRK) Verizon Communications (NYSE: VZ), and Western Digital (NASDAQ: WDC). 

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