Goldman says play defense with these stocks if you’re worried about the AI bull failing
Investors worried that the artificial intelligence trade might lose steam should look to health care and consumer staples stocks, according to Goldman Sachs. “After months of intensifying pressure from interest rates, concerns about the rising cost of capital have caused the equity market to downgrade its growth expectations,” Goldman analysts led by Ben Snider wrote Friday. “A sharp reduction in investor positioning has amplified equity market moves. During the past two weeks our Cyclicals vs. Defensives pair has declined by 6%, and rates and credit markets have reflected similar pressures.” Goldman estimates AI capital spending currently contributes about half of S & P 500 earnings growth, but expects that to diminish as spending growth slows. The bank’s defensive playbook comes as rising energy prices and interest rates cloud the economic outlook, with higher financing costs raising questions about the durability of the AI infrastructure buildout. Investors concerned about a weaker outcome, however, “should focus on stocks in defensive industries with ‘quality’ attributes,” especially those that have recently lagged the broad market, Goldman said. Here are several names from that made the Goldman screen: Tyson Foods stands out with an 11% trailing four-quarter free cash flow yield, the highest among the companies on Goldman’s screen. Shares of the food and beverage company are down nearly 17% over the past six months, according to FactSet data. Tyson also yields 3.72%. CVS Health also made the cut thanks to its 9% free cash flow yield. Its stock has gained 15% for the year, but has fallen 15% in the past three months. CVS offers a 2.88% yield, FactSet data shows. To be sure, Goldman’s base case still calls for continued earnings growth. It sees the possibility of a catch-up trade in beaten-up consumer-facing stocks, fueled by weaker energy prices and falling interest rates that its macroeconomic forecasters anticipate in 2027, which will support household spending.
