Economically sensitive stocks like energy and airlines led the recent pullback in the broader market, but they haven't lost their luster, said Goldman Sachs' top strategist, who is advising clients to buy the dip in many reflation trades. "Although the S & P 500 index trades at a record high, some cyclical and virus-exposed pockets of the market remain underwater, creating an opportunity for tactical investors," said David Kostin, Goldman's head of U.S. equity strategy. Value stocks have been laggards in the market as of late as a slide in Treasury yields along with the fast-spreading delta variant made investors increasingly worried about the economic recovery. The Russell 1000 value index is about flat this month, compared with a 4.5% gain in its growth counterpart. Still, Kostin believes that the concern about the delta variant is overblown and the market will continue to be supported by the strong equity demand and the economic reopening. "Investors are concerned about the impact on economic growth from the Delta variant, but the new strain should not pose a major market risk," Kostin said in a note. "Vaccinations, equity demand from households and corporations, and attractive relative valuations will support equity inflows and prices." The S & P 500 hit another record Monday, bringing its 2021 gains to 17.5%. For investors wanting to capitalize on the rebound in cyclical names, Goldman identified a slew of tactical positions in virus-exposed stocks based on the following criteria: Russell 1000 stocks in cyclical industries 2021 sales growth expected to be greater than 25% Positive 2022 sales growth stocks that have declined by at least 10% since May. The list includes several airlines names — JetBlue Airways , United Airlines and Southwest Airlines . Travel-related name TripAdvisor also made the list. United Airlines last week reported higher second-quarter revenue and a narrower loss thanks to a resurgence in air travel, while Southwest posted a second-quarter profit. Energy stocks New Fortress Energy and Valero Energy were also highlighted. Goldman said the S & P 500 energy sector is trading more than 10% below where it was a month ago. Given bullish forecasts for oil, many energy stocks represent a tactical opportunity, Kostin said. Freeport-McMoRan, GoHealth and Harley-Davidson are recommended by the Wall Street firm as well.
A trader works on the floor of the New York Stock Exchange (NYSE), July 21, 2021.
Brendan McDermid | Reuters
Economically sensitive stocks like energy and airlines led the recent pullback in the broader market, but they haven't lost their luster, said Goldman Sachs' top strategist, who is advising clients to buy the dip in many reflation trades.