How to buy cheap stocks with strong earnings: Goldman Sachs strategy - Business Insider

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The gap between expensive and cheap stocks is the widest since the tech bubble — and Goldman Sachs has created the perfect trade to avoid getting trapped on either side

which bets on the best-performing stocks and wagers against the worst performers suffered its worst single-day decline on September 9, according to Bloomberg data.

Value stocks have lagged so far behind growth that the gap between high-multiple and low-multiple stocks is the widest since the tech bubble, Goldman Sachs research shows.The first part of Goldman's answer is that the existing gulf should not be used as a timing tool. In other words, value stocks are not more attractive because they are extremely cheap, and growth stocks are not undesirable because of their high multiples.

According to Kostin, this Goldilocks category is ideal now because the hypothetical conditions needed to drive value's outperformance simply aren't present. He narrowed these conditions down to two scenarios: a strong or improving economy that would encourage risk-taking in cheaply valued stocks, and a weak economy that would benefit underowned stocks relative to their more expensive peers.

"Accordingly, we recommend investors focus on stocks with Growth at a Reasonable Price , strong growth but without the extreme valuations carried by many secular growth stocks."Russell 1000

 

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