Goldman’s US equity strategist suggests where to invest right now
U.S. equity markets have taken a battering in recent months amid trade war tensions, fears of an economic slowdown and Fed rate hikes – not to mention ongoing political uncertainty with the U.S. government shutdown.
David Kostin, chief U.S. equity strategist at Goldman Sachs, told CNBC Wednesday where he would recommend investing amid the current uncertainty.
“From a strategy perspective we want to focus on companies and industries that are less economically sensitive,” he told CNBC’s Joumanna Bercetche in London.
“So, the idea is that if the economy accelerates or re-accelerates, or deteriorates, what are some industries that have more stable characteristics? So look at the software industry in the U.S. – in 50 years, there has been only four quarters – out of 200 quarters – of negative real spending on software in the U.S. So, if you’re looking for a stable business that is the nature of that business,” he said.
“That’s why some of the software companies where there’s more of a recurring revenue stream is an attribute that we’re looking for in this environment,” he said, speaking from Goldman Sachs’ global strategy conference.
Government policy and Fed rate hiking policy are the biggest risks in the immediate term, Kostin said, but he said equity valuations look “reasonably attractive.”
He said software companies were “shifting more and more of their business revenue mix towards recurring revenues – (so) that’s an area to focus on,” he said.
A recurring revenue model is based on ongoing regular payments for a service or a product as opposed to one-time payment. More and more software companies are moving towards this model in order to ensure stability of profit streams.
A number of software companies rely on revenue from recurring services like cloud subscriptions.