UPDATE: Buckle up: there are more than 200 stock catalysts left in 2017
By Ryan Vlastelica
The health-care sector in particular has a lot it could move on
The U.S. stock market may have seemed devoid of action lately, with the historically weak month of September instead emerging as one of the quietest periods in history (http://www.marketwatch.com/story/september-slump-on-wall-street-at-least-not-yet-2017-09-19), but don't worry: there will be plenty of events that could drive markets over the remainder of the year.
According to Goldman Sachs, "there are more than 200 single stock catalysts before year-end, in addition to earnings and potential unscheduled preannouncements."
Because the investment bank looked at individual securities, as opposed to the broader market, the analysis focuses more on micro events, rather than the kind of headline factors--for example, economic data, government policy, or geopolitical issues--that may drive major indexes on a day-to-day basis.
While the catalysts were identified "across all sectors," Goldman wrote that the industrial (XLI), consumer-staples (XLP), and especially the health-care (XLV) sectors had particularly crowded calendars for events, and added that options investors weren't fully recognizing the potential for these industries to move on news.
"Nearly 40% of the upcoming catalysts that we have identified into year-end are in the Healthcare sector, most of which occur before November expiration," wrote Katherine Fogertey, one of Goldman's options strategists, citing medical conferences--including the American Society of Hematology and the American College of Rheumatology--as events "which could have important drug data and implications for the sector. Additionally, we find a number of investor days and drug updates that could make the sector more volatile into year-end."
Despite all this, the sector has an implied volatility level that is two points below its average over the paste year, it wrote.
For the other industries, 41% of the industrial sector's market capitalization, or value, has at least one nonearnings event before the end of the year, while the same is true for 58% of the staples group. "In Industrials, the events are most weighted to December with the annual outlook calls by many large multi-industrials. In Staples, November is the most catalyst rich month as nearly 20% of the market cap in the S&P 500 sector will host Analyst Days."
Among the most notable specific plays, Goldman recommended investors buy calls on both Wal-Mart Stores (WMT) and Caterpillar Inc. (CAT), both of which are Dow components and industry bellwethers.
Calls are options contracts that confer upon the owner the right, but not the obligation, to purchase an asset a specified "strike" price, and are generally used to make bullish bets on an asset.
For Wal-Mart, Goldman analyst Matthew Fassler recommended buying the calls ahead of the discount retailer's analyst day, which will occur on Oct. 9 and 10. While current options positioning suggests "no strong directional bias," he said that the stock could rise 8% over the coming 12 months given its "30%-plus e-commerce growth, positive brick & mortar traffic, and long-term positioning."
For Caterpillar, Goldman noted that the heavy machinery marker's one-month implied volatility of 20% was below its average level over the past year, "despite the potential for options to capture an earnings report," which move a median of 3.8%, historically.
The investment bank forecast upside of 10% in Caterpillar shares, writing it was "is positioned to deliver higher margins in this cycle following structural changes in its manufacturing footprint," among other factors.
Thus far this year, Caterpillar shares are up 34% while Wal-Mart is up nearly 15%. The industrial sector has gained 13.7% while consumer staples are up 5.3%. Health care is up nearly 18% thus far this year, a rally second only to technology.
The S&P 500 is up 11.5%.
-Ryan Vlastelica; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires