By Barbara Kollmeyer

Goldman Sachs lays out stock picks in the 'HALO' trade it sees entering a second, and tougher, phase

Shell is one company Goldman Sachs favors in a more challenging phase of the HALO trade - heavy assets, low obsolescence - to come.

Earlier this year, when artificial-intelligence disruption worries started to run high, Josh Brown, CEO of Ritholtz Wealth Management, declared that the "HALO" trade - heavy assets, low obsolescence - would be the most important one of the year.

That trade, which focuses on companies immune to artificial intelligence's disruptive forces, has done well, a team of Goldman Sachs strategists told clients on Tuesday. But in our call of the day, those strategists see a second phase to come, in which those companies have to deliver on the earnings front, and winners and losers start to look more apparent.

Guillaume Jaisson and his team at Goldman focus their buy-rated HALO recommendations on five themes: infrastructure, basic materials, aerospace and defense, complex manufacturing and consumer platforms, and the physical layer of tech. What the team's recommendations have in common: scarce physical assets, high barriers to entry, rising replacement costs and limited risk of technical obsolescence.

Pairing capital-intensive stocks with a short position in capital-light companies such as software services has delivered a 20% year-to-date gain, even after a small initial selloff in stocks exposed to manufacturing and global trade amid the Mideast conflict. The shock of war has also strengthened energy security and industrial sovereignty, benefiting oil and gas and utility companies.

The HALO trade is not out of fuel, they say. Investors are still skewed away from value stocks, "suggesting investors remain under-positioned for a world in which physical assets, infrastructure and industrial capacity regain strategic importance," the team says.

All these companies now have to do is deliver on higher earnings, rather than rely on the market to value them at higher multiples.

Sifting through the HALO companies that are more likely to perform, Jaisson and his team say data centers, semiconductors, utilities and defense are expected to represent more than 40% of total capex in 2026, up from 25% in 2022.

"This concentration reflects the underlying drivers of the cycle, including AI investment, the energy transition and re-industrialisation, and supports the view that we are in a sustained capex upcycle rather than a short-lived rebound," according to Goldman.

The HALO theme, importantly, is global, and the team suggests investors should watch out for regions where the potential hasn't fully been priced in for companies: "The global market structure suggests that this new phase of 'physical economy' growth may favor Europe, Japan and parts of [emerging markets] more than the U.S., where equity markets remain more concentrated in capital light sectors."

And that may help explain the relative outperformance by non-U.S. markets this year.

Here are some of Goldman's buy-rated picks:

  • Infrastructure companies: Enel IT:ENEL, E.ON XE:EOAN, RWE XE:RWE, Veolia Environnement FR:VIE, Naturgy Energy Group ES:NTGY.
  • Basic materials: Shell SHEL, BP BP, Eni IT:ENI, Repsol ES:REP, Antofagasta UK:ANTO, Air Liquide FR:AI.
  • Aerospace and defense: Airbus FR:AIR, BAE Systems UK:BA, Rheinmetall XE:RHM, Rolls-Royce UK:RR, Melrose Industries UK:MRO, Safran FR:SAF.
  • Manufacturing and consumer platforms: Volvo SE:VOLV.B, BMW XE:BMW, Porsche XE:P911, Nestlé CH:NESN, Heineken NL:HEIA, Marks & Spencer UK:MKS, International Consolidated Airlines UK:IAG.
  • Physical layer of technology: ASML Holding ASML, ASM International NL:ASM, Infineon XE:IFX, Deutsche Telekom XE:DTE , Orange FR:ORA, BT Group UK:BT.A, Telefónica ES:TEF, Telenor NO:TEL, Telia SE:TELIA.

The markets

U.S. stocks have opened mixed with gains for the Dow industrials DJIA, but the Nasdaq COMP sliding and the S&P 500 SPX also struggling after a Samsung rout in Seoul. Crude (CL.1) (BRN00) is up over 1% amid fresh tensions in the Strait of Hormuz.

Key asset performance Last 5d 1m YTD 1y S&P 500 7537.43 2.49% 2.08% 10.11% 20.04% Nasdaq Composite 26,121.16 3.26% 1.60% 12.39% 26.79% 10-year Treasury 4.502 3.30 -2.00 33.00 9.20 Gold 4131.2 2.72% -3.58% -4.64% 24.78% Oil 69.25 -1.11% -21.93% 20.62% 1.57% Data: MarketWatch. Treasury yields change expressed in basis points

The buzz

Samsung (KR:005930) said it expects a nineteenfold increase in second-quarter operating profit versus a year ago as shares of the microchip maker, as well as rival SK Hynix (KR:000660), ended lower in Seoul. Micron stock (MU) is also dropping.

SpaceX (SPCX) will officially join the Nasdaq-100 on Tuesday while its underwriters have launched coverage after a post-IPO quiet period.

Rivian Automotive stock (RIVN) is slumping a day after gaining following an upgrade by JPMorgan. The company said Tuesday it would sell 75 million new shares.

Iran's Islamic Revolutionary Guard Corps fired at two commercial ships near the Strait of Hormuz early Tuesday.

The U.S. May trade balance came in at $77.6 billion, versus expectations of $78 billion. The New York Fed's survey of consumer expectations is due at 11 a.m. The Treasury will auction $58 billion in 3-year notes.

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-Barbara Kollmeyer

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