Leading companies in the weak balance sheet basket include CBS, General Motors and Allergan."The outlook for Fed policy, the pace of economic and earnings growth, and relative valuation are the key drivers of our view on strong vs. "Changes in these variables could cause us to reengage with strong balance sheets or pivot to recommending weak balance sheets instead."The emergence of high-beta stocks and lower quality has been a boon so far for stock pickers.
In January, a strong month for stocks, 49 percent of large-cap active managers beat their benchmarks, according to Bank of America Merrill Lynch.
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Strong balance sheet stocks typically perform well when rates are rising and the economy is growing because those with more debt have trouble with financing costs.
Corporate debt has been growing at a steady clip during the recovery and now exceeds trillion.
That kind of valuation was last seen during the tech bubble at the turn of the century.
Goldman is not recommending that investors bail on low-leverage companies completely — Kostin said they are still worth some allocation as a "tail risk" hedge while earnings growth tails off and the companies continue to offer sustained growth ahead, albeit at a slower pace.
These main points work together to help the paper flow from one point to the next.
We think the debt has to be seen from the standpoint of its origins.