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Opinions are still somewhat split on just what the Federal Reserve will decide to do at a two-day meeting that wraps up Thursday, but the general consensus seems to be that Chairman Ben Bernanke and his colleagues will announce a third round of asset purchases.
Goldman’s chief U.S. economist Jan Hatzius believes there is a better than 50% chance the Fed extends the duration of its low interest rate pledge and announces further asset purchases, largely due to Bernanke’s “self-described ‘grave concern’ about the labor market.”
Two previous rounds of quantitative easing provided a big lift for the stock market, particularly more risky, speculative names. In an equity research note Wednesday, Goldman Sachs tells clients that QE3 is likely to have the same effect.
“If history is a guide, lean cheap and towards growth,” Goldman advises. “[S]tocks with low valuations or high growth prospects … have historically outperformed around policy statements.” Analysts Robert Boroujerdi, Michael Chanin and Deep Mehta provide a list of cheap growth names that could be poised to rally, since the big winners in previous QE gains have been faster-growing companies and those with inexpensive valuations. Among the names Goldman highlights because of their improving operating profits: oilfield services firm Halliburton, online marketplace eBay, railroad operator Norfolk Southern and medical equipment company Hologic.
The Goldman team also identifies a list of 30 stocks that did well when the Fed made previous quantitative easing announcements. The list looked at consistent outperformers over the two weeks prior and six weeks after each of the five previous QE-related announcements: launch of QE1 (11/25/08); extension of QE1 (3/18/09); launch of QE2 (11/3/10); launch of Operation Twist (9/21/11); and extension of Operation Twist (6/20/12).
Topping that list: SanDisk, which outperformed its sector by at least 22% in four of the five periods and posted a median outperformance of 23%. The other names making up the top five in terms of median outperformance are Schnitzer Steel Industries (21%), Nuance Communications (20%), Convergys (16%) and Lennar (14%).
Other names that stand out include home improvement retailer Home Depot, easily the biggest name on the list by market cap, Dick’s Sporting Goods and Monsanto.
On the index level, another Bernanke boost would come with the major U.S. averages already at multi-year highs. The Dow Jones industrial average closed at 13,333 Wednesday, its best level since December 2007, while the S&P 500 closed at 1,437, flirting with levels not seen in nearly five years.
source: forbes.com
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