Big tech is wobbling. Goldman Sachs says it's time to buy these 23 unloved stocks instead.

By Barbara Kollmeyer

As times get tough for big tech stocks, Goldman Sachs says investors should look at defensive-type stocks and consumer names like J.M Smuckers.

Now that the tech sector that has powered the stock market is wobbling, what's an investor to do?

Goldman Sachs strategists led by Ben Snider told clients in a note late Friday that they should focus on buying stocks in sectors that haven't done as well.

In particular they recommend consumer-facing stocks, on the view energy prices and interest rates will fall next year, lifting real income growth across consumers. They also favor consumer experience stocks, which they see as cheap and exposed to strong secular growth.

Snider and his team noted that exposure to consumer discretionary companies XLY, which deal in nonessential goods and services, is at multiyear lows among Wall Street hedge funds that have also been trimming exposure to AI-related stocks.

Goldman's basket of low-income consumer discretionary stocks has rallied 7% since October. "In particular, our economists expect that income growth for the bottom income quintile will accelerate notably in 2027 as inflation slows and January cost-of-living adjustments boost transfer payments," they said.

Snider and his team suggested focusing on defensive industry stocks with "quality" attributes.

They offered a screen of 23 Russell 1000 RUI stocks from healthcare and consumer staples poised to outperform if the market continues to pare back on growth, such as Tyson Foods (TSN) and CVS Health (CVS). The stocks are in defensive industries that rank above average when it comes to share-price volatility, free cash flow yield and how well they can convert operating profit into cash:

 
Healthcare Equipment & Services  Name                                               Industry group                                 YTD return  2-week return  12-month realized volatility  Trailing fourth-quarter FCF yield 
TSN                              Tyson Foods, Inc.                                  Food Beverage & Tobacco                        -5%         4 %            26                            11 % 
RPRX                             Royalty Pharma Plc                                 Pharmaceuticals Biotechnology & Life Sciences  56 %        4 %            23                            9 % 
CVS                              CVS Health Corporation                             Health Care Equipment & Services               19 %        7 %            31                            9 % 
SJM                              J.M. Smucker Company                               Food Beverage & Tobacco                        33 %        7 %            28                            9 % 
KR                               Kroger Co.                                         Consumer Staples Distribution & Retail         2 %         6 %            29                            8 % 
CAH                              Cardinal Health, Inc.                              Health Care Equipment & Services               25 %        11 %           30                            8 % 
HCA                              HCA Healthcare Inc                                 Health Care Equipment & Services               1 %         10 %           31                            7 % 
HRL                              Hormel Foods Corporation                           Food Beverage & Tobacco                        -10%        1 %            29                            7 % 
PFGC                             Performance Food Group Co                          Consumer Staples Distribution & Retail         8 %         4 %            29                            6 % 
SYY                              Sysco Corporation                                  Consumer Staples Distribution & Retail         15 %        6 %            27                            6 % 
KVUE                             Kenvue, Inc.                                       Household & Personal Products                  13 %        9 %            29                            6 % 
HSY                              Hershey Company                                    Food Beverage & Tobacco                        -5%         5 %            27                            6 % 
USFD                             US Foods Holding Corp.                             Consumer Staples Distribution & Retail         35 %        5 %            30                            5 % 
MRK                              Merck & Co., Inc.                                  Pharmaceuticals Biotechnology & Life Sciences  41 %        1 %            29                            5 % 
RMD                              ResMed Inc.                                        Health Care Equipment & Services               1 %         11 %           29                            5 % 
DGX                              Quest Diagnostics Incorporated                     Health Care Equipment & Services               40 %        3 %            24                            5 % 
CHE                              Chemed Corporation                                 Health Care Equipment & Services               21 %        2 %            29                            5 % 
ABT                              Abbott Laboratories                                Health Care Equipment & Services               -14%        8 %            27                            5 % 
MDLZ                             Mondelez International, Inc.                       Food Beverage & Tobacco                        20 %        8 %            24                            4 % 
MCK                              McKesson Corporation                               Health Care Equipment & Services               22 %        11 %           31                            4 % 
CHD                              Church & Dwight Co., Inc.                          Household & Personal Products                  24 %        9 %            23                            4 % 
ABBV                             AbbVie, Inc.                                       Pharmaceuticals Biotechnology & Life Sciences  28 %        8 %            26                            4 % 
CL                               Colgate-Palmolive Company                          Household & Personal Products                  19 %        10 %           23                            4 % 
List median                      -                                                  -                                              19 %        7 %            29                            6 % 
Russell 1000 median              -                                                  -                                              6 %         2 %            36                            4 % 
Source                           FactSet, Goldman Sachs Global Investment Research  -                                              -           -              -                             - 

The S&P 500 Index SPX, dominated by big tech companies, last week saw its worst weekly return since late June. Its performance has been increasingly disjoined from the average stock for months, but the divide began heating up in September.

Rising worries about the cost and availability of funding for companies has pushed investors to cut equity-market exposure to those AI companies and price in a deceleration of earnings growth, noted Goldman.

Goldman sees still-solid earnings-per-share growth in 2027 - their baseline forecast calls for S&P 500 EPS to grow 36% in 2026, but slow to 11% in 2027. They estimate that AI capex is currently contributing about half of that EPS growth, which should fade in 2027 as capex growth slows and depreciation expenses build.

"In addition to pressure from interest rates and energy prices, slowing AI investment growth will be a fading tailwind," with early reads on the third-quarter supporting this view, the strategists said.

During the last four quarters, 64% of S&P 500 firms beat EPS consensus forecasts, but just 53% of firms have managed that for the third-quarter reporting season getting underway, said Goldman.

-Barbara Kollmeyer

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10-19-26 0558ET