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GOLDMAN SACHS: These are the top 11 companies to watch as we enter the best stock-picking environment in over a decade

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  • Goldman Sachs says stock pickers have been presented with their biggest opportunity in more than a decade as returns from stocks start to diverge dramatically.
  • Strategist Ryan Hammond created a way to find the stocks set to stand out from the market the most, giving an investors a chance to buy the potential gainers and short future losers.
  • Over the last few months, stocks have moved in unison as investors alternated between being very pessimistic or very optimistic about equities broadly.
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If you've gotten the impression that stocks have been either rising in unison or falling together, you're not far off.
Goldman Sachs US equity strategist Ryan Hammond notes that correlations between stocks — or the mathematical connection between the directions of equity moves — has soared over the last three months. The measure is now as high as it was in the Black Monday crash in 1987, the day the S&P 500 fell 22.6%.
But as time goes on, investors are hunting for coronavirus-related winners and losers. That means the dispersion of stocks — or the uncertainty about how each one will perform — is on the rise. Hammond says that's a trend that's only going to get more pronounced.
"We expect return dispersion will remain elevated in the near term as investors continue to assess the relative 'winners' and 'losers' in the current environment," he wrote in a note to clients. "History shows that correlations typically fall and dispersion rises further as the equity market rebounds out of a bear market."
That's a big change that means investors who buy the right stocks might reap much bigger rewards than they did over the last 11 years, when correlation was high and it was hard to find individual stocks that would outperform.
"Following a decade of persistently narrow return dispersion, the dispersion of S&P 500 returns has risen to its widest level since 2009," Hammond wrote. He says dispersion is especially high among consumer discretionary stocks.
Hammond and his team also created a list of the stocks that are most likely to stand out from the broader market.
To evaluate them, Hammond measured the proportion of each stock's return that was driven by issues specific to the company, meaning it couldn't be explained by other factors like size or what sector it operates in. He also calculated the amount of risk associated with that return.
He combined those two factors into a metric he called a dispersion score. Investors can use it to get a sense of how much risk is associated with an investment in each stock.
"Stocks with high dispersion scores are more likely to have heightened responses to idiosyncratic news and present the best alpha generation opportunities," he wrote.
Perhaps not surprisingly, some of the stocks with the highest scores have nosedived during the pandemic as traders feel they face huge risks. But some investors believe those stocks could stage big comebacks.
For traders who are more skeptical, their dispersion could present an opportunity to win by shorting the stock. Ultimately the direction of the bet is at the discretion of the trader.
Here are the 11 stocks with the top dispersion scores, ranked from lowest to highest. The median S&P 500 company has a dispersion score of 2.0.
SEE ALSO: MORGAN STANLEY: Investors have a rare opportunity to make low-risk profits in 2020. Here's a 3-part strategy for pulling it off.

11. Align Technology



Ticker: ALGN
Sector: Healthcare
Market cap: $15.1 billion
Percentage of six-month micro-driven returns: 35%
Dispersion score: 10.6
Source: Goldman Sachs



10. CBRE Group



Ticker: CBRE
Sector: Real estate
Market cap: $13.4 billion
Percentage of six-month micro-driven returns: 34%
Dispersion score: 10.6
Source: Goldman Sachs



9. Ulta Beauty



Ticker: ULTA
Sector: Consumer discretionary
Market cap: $11.8 billion
Percentage of six-month micro-driven returns: 39%
Dispersion score: 11.7
Source: Goldman Sachs



8. Royal Caribbean Cruises



Ticker: RCL
Sector: Consumer discretionary
Market cap: $7.7 billion
Percentage of six-month micro-driven returns: 36%
Dispersion score: 12.9
Source: Goldman Sachs



7. TransDigm Group



Ticker: TDG
Sector: Industrials
Market cap: $17.2 billion
Percentage of six-month micro-driven returns: 47%
Dispersion score: 13.0
Source: Goldman Sachs



6. Live Nation Entertainment



Ticker: LYV
Sector: Communication services
Market cap: $8.1 billion
Percentage of six-month micro-driven returns: 52%
Dispersion score: 13.1
Source: Goldman Sachs



5. Delta Air Lines



Ticker: DAL
Sector: Industrials
Market cap: $14.5 billion
Percentage of six-month micro-driven returns: 44%
Dispersion score: 13.7
Source: Goldman Sachs



4. MGM Resorts International



Ticker: MGM
Sector: Consumer discretionary
Market cap: $6.8 billion
Percentage of six-month micro-driven returns: 37%
Dispersion score: 20.3
Source: Goldman Sachs



3. L Brands



Ticker: LB
Sector: Consumer discretionary
Market cap: $3 billion
Percentage of six-month micro-driven returns: 52%
Dispersion score: 26.2
Source: Goldman Sachs



2. United Airlines



Ticker: UAL
Sector: Industrials
Market cap: $6.6 billion
Percentage of six-month micro-driven returns: 46%
Dispersion score: 32.7
Source: Goldman Sachs



1. Apache



Ticker: APA
Sector: Energy
Market cap: $3.8 billion
Percentage of six-month micro-driven returns: 42%
Dispersion score: 41.0
Source: Goldman Sachs





* This article was originally published here Press Release Distribution

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