Finance

Goldman’s Kostin Says Tech, Health Care Are Stocks to Own

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what do i not want to own right now what you want to avoid are companies that have a shorter duration in their cash flow what do i mean by that that is to say that the average time in which their earnings and their cash are coming in a relatively short duration in contrast what you want to own are companies with the longest duration assets and those would be particularly in the technology in the healthcare sector the reason for this is that the low interest rate environment which is the characteristic that we expect to persist for a number of years into the future that low interest rate environment increases the value of those longer duration assets and so right now the the market is paying for is trading is valuing embracing companies that have this longer duration attribute of their cash flows number one number two if you have shorter term growth that’s also good and the third issue is the balance sheet strength so those three things long term short term and bounty they explain 50 of the variation of stock prices in the market that is those are the three attributes and they’re paying for a greater premium for that longer duration asset so that’s what you want to own which you won’t join to avoid accomplishing the short duration david if you want to break some news here off the good uh work of heath terry you can tell us about maybe a raised price target at goldman sachs on amazon but what i would note is massive extrapolation out there right now are we at risk of extrapolating this rally causing us great danger later well you ask an interesting question because what has surprised me is the number of portfolio managers who are calling us and asking about 2022 estimates you heard me correctly 2022. uh that’s different right about a few months ago everyone had the view which certainly we embraced it and advocated they should avoid or look through the trough in 2020 and really focus on the level of profitability for next year 2021. well when markets rallied back a lot and clients are asking and focusing on 2022 so what kind of level of earnings do we expect uh in the next couple of years we’ve got 170 dollars of earnings for next year 170 dollars in 2021. rising about 11 to 188 dollars in 2022. so that’s the trajectory it’s uh certainly getting somewhat better as ours are our in our model and some of the assumptions but the idea tom of your question about extrapolating forward certainly people have been looking further in the future to rationalize share prices at the uh at the current uh current high level on an absolute basis well david let’s extrapolate out even further you’ve come out with a 10-year outlook some basic assumptions on a range of returns you’re expecting what’s different between this outlook and the one you put back out in 2012 all those years ago okay well thanks for uh we did focus on this because it’s the middle of the year right it’s july and a number of pension funds start to focus on their asset allocation they basically june 30 is often their their their end of their uh calendar marking in terms of performance and so if i look out over the next 10 years what i’m looking for in forecasting is six percent annualized nominal total return so what does that mean that’s six percent including dividends which are roughly now around two percent that’s the compound annualized total return over the next decade i’ll put some confidence intervals around that at two percent on the low end so positive two percent and around eleven percent per year on the high end so six percent the midpoint now what was my report card so eight years ago in july of 2012 we published the last time we really went out and looked at a 10-year forecast and we anticipated around 8 percent uh return with a high of around 12 and the actual reality of realized returns was around 13.6 percent the bottom line looking forward you’ve got a slower growth environment uh we have a much uh meaningfully higher starting valuation which is certainly uh you know predictive of a return to a meaningful amount and we do a lot of stimulation in terms of the type of economic environment dividend growth etc that we’re likely to anticipate and experience over the next decade so between now and 2030 we should uh we should be anticipating around six percent annualized return for the market

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