To varying extents, most stocks tend to have correlations with the broad direction of the economy and of the the market, the latter often referred to as systematic risk, or beta. Meanwhile, "global political uncertainty continues to climb, threatening economic and earnings growth as well as investor risk sentiment and equity valuations," as Goldman Sachs writes in their latest U.S. Weekly Kickstart report, which also offers a course of action to investors.
"Elevated uncertainty supports owning stocks with strong idiosyncratic growth and limited dependence on the path of economic activity," Goldman Sachs advises. Their report lists 27 secular growth stocks that fit this profile, including these six: GoDaddy Inc. (GDDY), Ocado Group PLC (OCDO.London), Ctrip.com International Ltd. (CTRP), JD.com Inc. (JD), Amazon.com Inc. (AMZN), and Globant SA (GLOB). This is first of two articles that Investopedia will devote to that report, the second to come on Thursday afternoon.
6 Secular Growth Stocks
(Based on Long-Term EPS Growth Rate Estimates)
- Ocado: 87%
- Amazon.com: 42%
- Ctrip.com: 24%
- GoDaddy: 22%
- JD.com: 21%
- Globant: 20%
Source: Goldman Sachs
Significance for Investors
"Our preference for the Info Tech and Communication Services sectors stocks is reinforced by their relatively low historical correlations with economic growth," the report notes. Of the 27 stocks on Goldman's list, five are in the tech sector (including GoDaddy and Globant), four are in communication services, but nine are in consumer discretionary (including Ocado, Ctrip.com, JD.com, and Amazon.com).
The median company on the list has estimated sales growth rates of 27% in 2018, 20% in 2019, and 17% in 2020. By comparison, the figures for the median company in the MSCI All Country World Index are 4%, 4% and 5%, respectively.
GoDaddy offers internet domain name registration, website design, and web hosting services, focusing on small businesses that are not tech-savvy. By offering comprehensive web-related solutions, its client base and the average revenue per client have been growing briskly, as described in a previous article.
In particular, GoDaddy assists clients with online marketing and other services aimed at helping them to monetize their online presence. However, this is a market with low barriers to entry, with existing competition and the risk that several tech giants also may choose to become players.
Globant, headquartered in Argentina but with a worldwide footprint and client base, offers customized software development and information technology consulting services, with a particular focus on business to consumer (B2C) applications.
Ocado is an online supermarket based in the U.K. that has no physical stores. It delivers direct to consumers from its warehouses. In May 2018, U.S. grocer Kroger (KR) signed an exclusive technology deal with Ocado and bought a 5% stake in the British company.
Ctrip.com is a travel booking service based in China.
JD.com is the second-largest e-commerce company based in China, next to Alibaba Group Ltd. (BABA). Like its U.S.-based rival Amazon.com, a growing part of JD.com's business is an online marketplace for smaller retailers that could not match the sophistication and reach of JD.com's online sales platform. Meanwhile, Walmart Inc. (WMT) has a 12% ownership stake in JD.com, part of an expanding strategic alliance, as described by The Motley Fool.
Even if Goldman is correct in its assessment that these stocks have strong long term growth potential, regardless of macro conditions, that does not mean that they are immune from short term price declines, including declines in reaction to macro events. Buying stocks based on long term potential requires having the nerve to shrug off the inevitable short term setbacks and stay the course.