- Stocks took sharp losses this week, and have fallen more than 13% in 2022.
- Goldman Sachs’s US stock chief says that when investors get this bearish, stocks usually rally.
- David Kostin says investors should buy stocks that can deliver big buybacks and dividends.
Stocks have spent 2022 tumbling, and investors feel terrible about it.
But analysts at Goldman Sachs think that’s actually a sign things will look a whole lot better soon. Chief US Equity Strategist David Kostin recently said that investor sentiment is terrible right now, which is an important contrarian indicator.
“Our Sentiment Indicator fell to -2.2 last week and the most recent reading equals -2.5,” Kostin wrote in a recent note to clients. “Readings below -2.0 have been consistent with 1-month forward returns of +5%, on average.”
Writing at the end of April, Kostin pointed out that the stock market became more volatile when companies had to stop buying back their shares because of required blackout periods before their earnings reports. When that ends, it will provide another tailwind for stocks.
“Ahead of earnings reports, companies are restricted from discretionary share repurchases,” he said. “By next week, most firms will have exited their blackout windows.”
Kostin says that S&P 500 stock buybacks will grow 12% this year because companies have large cash balances and earnings continue to grow. He say that tech and communication stocks seem intent on buying more, while banks are cutting back because they’re bolstering their balance sheets.
Kostin adds that buybacks and dividends are a great way to find outperformance in an economic environment like this one.
“When growth slows, a sector neutral portfolio of stocks spending the most on buybacks and dividends as a share of
typically outperforms stocks spending on capex and R&D,” he said.
Below are the 17 companies with the biggest buyback and dividend yields over the last 12 months. They’re ranked from lowest to highest based on that combined return as of April 28.