Goldman created a 'high quality' stock portfolio for weak economies — Here's what's in it

Published Tue, Feb 25 202012:00 PM EST

(This story is for CNBC Pro subscribers only.) If the economy is about to slow because of the coronavirus, investors might look to companies with strong fundamentals and stable earnings to ride out the volatile year. Goldman Sachs created a "high quality stocks" basket for clients that contains 50 sector neutral large-cap stocks with strong balance sheets, histories of stable sales and earnings growth, and above-average return on equity. "In weak or uncertain macroeconomic environments investors should place a premium on the stability and safety of these companies," Goldman Sachs said in a note to clients. The spread of the coronavirus has rattled equities and sent bond yields to record lows, raising concerns about a global economic slowdown as the virus spreads from its epicenter in Wuhan, China, to countries in Europe, the Middle East and other parts of Asia. Health officials said the total number of cases has surpassed 80,000 with at least 2,704 confirmed deaths. Factories being closed are disrupting the global supply chain, pressuring companies with large exposure to revenues and labor in China. On Monday Goldman Sachs slashed its U.S. GDP growth forecast for the first quarter to just 1.2%, seeing a more severe drag from the coronavirus, with risks "clearly skewed to the downside until the outbreak is contained." If the global economy is bracing for a slowdown, investors might want to place more value on stability. Goldman's list ranges from financial services, technology, healthcare and consumer-related companies. The S & P 500 stocks all have a market cap above $10 billion with strong balance sheets and the highest so-called quality score according to Goldman compared to their sector peers. Credit card company Visa is featured in Goldman's basket and has the price history data to back it up its high quality score. Visa has ended the last nine years in positive territory, with most years accounting for double digit gains in the stock. Some of Visa's success can be attributed to the health of the U.S. economy, currently in its longest expansion in history. A robust economy encourages customers to spend more, boosting fee income for payment processors. Some of the other stocks in the basket include paint company Sherwin-Williams , energy drink company Monster Beverage and makeup retailer Ulta Beauty . While Dow Jones Industrial Average and the S & P 500 are down for the year, Alphabet is up about 6% in 2020. Google's parent company beat analyst earnings estimates for its fourth quarter earnings reported earlier this month, where Alphabet reported revenues for YouTube and its cloud business for the first time. Health care giant UnitedHealth has the highest quality score in the health care portion of the basket; however, the stock has been under pressure over fears of Vermont Sentator Bernie Sanders picking up the Democratic nomination. Sanders has vowed to take on the healthcare industry if elected and UnitedHealth trades as a bellwether for the health care sector. UnitedHealth happens to be one of the most loved stocks on Wall Street. Of the 26 analyst that cover UnitedHealth, 21 recommend buying it. Five analysts have a hold rating and no analysts recommend selling the stock. To be sure, Goldman's basket has underperformed the S & P 500 by a small margin since its inception in 2011, but that has come during a roaring bull market. — with reporting from CNBC's Michael Bloom.

An Ulta Beauty store.

Scott Mlyn | CNBC

(This story is for CNBC Pro subscribers only.)

If the economy is about to slow because of the coronavirus, investors might look to companies with strong fundamentals and stable earnings to ride out the volatile year.

Goldman Sachs created a "high quality stocks" basket for clients that contains 50 sector neutral large-cap stocks with strong balance sheets, histories of stable sales and earnings growth, and above-average return on equity.

"In weak or uncertain macroeconomic environments investors should place a premium on the stability and safety of these companies," Goldman Sachs said in a note to clients.