The market has entered a period of increased volatility and major uncertainties.
Two of the biggest uncertainties could have massive implications for the economy. NAFTA is still up in the air and, with U.S. tariffs on China set to go into effect tomorrow, both countries—and the rest of the world—are bracing for a possible full-blown trade war.
With such uncertainties, it’s important for investors to stick to companies that are financially sound. That’s according to a report from Goldman Sachs.
“In the equities market, tightening financial conditions should drive the continued out-performance of stocks with strong balance sheets,” stressed strategist David Kostin at Goldman. So far in 2018, the investment bank’s list of 50 companies with strong balance sheets has outperformed the weak balance sheet basket by 7%.
“In our case, a healthy economy will lead the Fed to tighten financial conditions, lifting interest costs,” said Kostin. “If economic growth slows, however, currently healthy interest coverage ratios will weaken as earnings decline. Both environments should benefit firms with strong balance sheets.”
Of the 50 companies on Goldman’s list, these are the three on my radar now.
Skyworks Solutions (NASDAQ: SWKS)
When you think of chipmakers, some big names come to mind. Intel (NASDAQ: INTC) for one has been on a tear this year and is up around 50%. Meanwhile, Skyworks has been pretty much trading flat. But this small chipmaker has far more upside ahead of it.
Skyworks is a key supplier to huge names in mobile connectivity, including Apple (NASDAQ: AAPL), playing a crucial role in the rise of smartphones and tablets. Skyworks has also found new applications for its chips in other connected devices, including cars, industrial equipment, and smart home appliances.
And with the number of connected devices worldwide expected to double in the next few years to more than 20 billion, Skyworks’ revenue and profits should be propelled ever forward for the foreseeable future, which should lead to more robust cash flows and a higher share price.
Nvidia (NASDAQ: NVDA)
Nvidia is another big name in the chipmaker space. The company has a long history of making high-quality graphic processing units (GPUs), but it wasn’t until around 2016 that the market really took notice. And much like Skyworks, the biggest catalyst for the company was mobile.
But the company has moved beyond that, taking center stage in the biggest tech megatrends, including the Internet of Things, Big Data, cloud computing, AI, and driverless cars.
It’s this unique position that makes NVDA particularly attractive, while also making it virtually trade war-proof. No matter the saber rattling between Washington D.C. and Beijing, NVDA will continue to grow its business as long as digital technology continues to rise.
And now may be a smart time to buy. The stock is down about 10% in the last month, but the company is also reportedly preparing to introduce a new graphics processor for the gaming market as early as August, which is likely to push the price higher.
Intuitive Surgical (NASDAQ: ISRG)
Artificial intelligence has become firmly entrenched in most hospital operating rooms, and the king of all robotic-assisted surgical systems is Intuitive Surgical.
At last report, 4,528 of the company’s da Vinci surgical system had been installed worldwide – far more than all of its competitors have in operating rooms combined.
This system isn’t cheap, topping out between $500,000 and $2.5 million, which means the hospitals that purchase them are in it for the long-haul with Intuitive Surgical, an advantage that would be tough for any competitor to overcome.
And robotic surgery is a segment that is likely to grow by billions of dollars as the global population ages, longevity improves, and access to medical care is improving in many markets, and Intuitive Surgical is in a great position to profit.
These are the other companies on Goldman’s list of 50 companies with strong balance sheets: