Which stocks to pick when market turns sour: Goldman

Recent meetings the bank held with investors showed unusually high interest in positioning themselves for a pull-back in share prices, according to Goldman strategists including Matthew Ross in Melbourne.

Their analysis, which spans market selloffs over 25 years, favours betting against companies that were poor performers in the three and 12 months leading up to the market's slide. Those firms are often facing funding problems at the inflection point for the broader market turn, the analysis shows.

Australia is already one of the laggards among global sharemarkets this year, with a rise of just 4 per cent compared with about 16 per cent for a global stock benchmark.

Poorly performing financial, real estate and telecom stocks have all weighed on the ASX, where traders are positioning for the possibility of higher interest rates late next year. Among other reasons for the caution, Goldman noted earnings momentum is getting weaker.

One important difference between the current market and historical market drops over the last 25 years is the unprecedented action of central banks in recent years, according to Ross and his colleagues.

This means that Goldman's strategy to buy stocks it categorises as "low risk" during sell-offs -- a trade that's worked in the past -- may not be successful this time around.

That's partly because valuations on this group of equities is already about 22 per cent higher than that of the broader market, which much higher than the multiple seen during prior peaks.

Goldman still found a few "low risk" stocks that should outperform the broader market if rate hikes send shares tumbling.

The analysts singled out the following stocks, which they said feature lower valuation premiums, some degree of profit-forecasting predictability and an absence of high levels of debt:

• healthcare company Sonic Healthcare
• retailer JB Hi-Fi
• paint maker DuluxGroup
• Power giant AGL Energy
• Petrol stations owner Caltex Australia

Bloomberg