Goldman says buy these stocks if coronavirus fears prove to be overblown

Published Mon, Feb 10 202010:32 AM ESTUpdated Mon, Feb 10 20203:37 PM EST

For investors who believe the impact of the coronavirus outbreak will be contained, Goldman Sachs said buy the dip in these value stocks. Equities rebounded last week despite lingering fears about the deadly virus, with the S & P 500 pulling off its biggest weekly gain since June. If the concerns about the epidemic turn out to be overblown, stocks with solid dividend growth should outperform, according to David Kostin, Goldman's head U.S. equity strategy. "Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks," Kostin said in a note Friday. Goldman has a portfolio of 50 stocks with above-average dividend yield and the fastest expected dividend growth. The basket underperformed the board market recently and currently trades with depressed valuations, Goldman said. For this trade recommendation, Goldman found the stocks in that basket which have a high beta, meaning they rise or fall at a more rapid pace than the market's rate of change. So if the market rebounds, these stocks will gain even more than the benchmark S & P 500. The stocks recommended by Goldman for this coronavirus-related buying strategy are Skyworks , DXC Technology , Wynn Resorts , Broadcom and Caterpillar . Wynn Resorts has taken the hardest hit from the coronavirus, down 11% in the past month, as restricted travel in China and around the world hurt its business. Chipmakers Skyworks and Broadcom also underperformed as their sales are highly exposed to the Chinese market. "Barring a significant change in circumstances, the impact of coronavirus on US equities will likely be focused on select firms with the most exposure to China," Kostin said. The stocks in Goldman's dividend portfolio will raise their payouts by an annualized rate of 9% through 2021, compared with the S & P 500′s median dividend growth rate of 5%, Goldman analysts estimate. The basket pays a dividend of 3.5%, versus the S & P 500′s 1.9% and much higher than the current 10-year yield of about 1.6%. Some of the other stocks in the basket include AT & T , biopharmaceutical company AbbVie and auto parts manufacturer Cummins .

A pedestrian with an umbrella walks in front of the Wynn Palace casino resort, operated by Wynn Resorts Ltd., in Macau, China, Jan. 31, 2018.

Billy H.C. Kwok | Bloomberg | Getty Images

For investors who believe the impact of the coronavirus outbreak will be contained, Goldman Sachs said buy the dip in these value stocks.

Equities rebounded last week despite lingering fears about the deadly virus, with the S&P 500 pulling off its biggest weekly gain since June. If the concerns about the epidemic turn out to be overblown, stocks with solid dividend growth should outperform, according to David Kostin, Goldman's head U.S. equity strategy.

"Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks," Kostin said in a note Friday.