A Shift Toward Defensive Growth and Travel Recovery

Goldman Sachs has rotated its U.S. Conviction List, a closely watched collection of high-conviction stock picks. The firm added Applied Materials (AMAT), Delta Air Lines (DAL) (DAL), Microsoft (MSFT), O’Reilly Automotive (ORLY), Viking Holdings (VIK), and UPS, while dropping Broadcom (AVGO), Dick’s Sporting Goods (DKS), Johnson & Johnson (JNJ), and ServiceNow (NOW).

The moves come as investors weigh mixed economic signals, with resilient consumer spending but lingering concerns over inflation and interest rates. By adding Microsoft, Goldman doubles down on large-cap tech and cloud computing, a sector that has shown durability amid macroeconomic uncertainty. The inclusion of Delta and Viking Holdings signals confidence in the travel recovery, while UPS and O’Reilly represent logistics and auto maintenance—areas that tend to be more defensive.

“We see attractive risk/reward in these names given their strong cash flows and secular growth drivers,” a Goldman analyst said, speaking on condition of anonymity. The firm declined to comment on the removals, but sources familiar with the matter suggest that some of the dropped stocks had reached valuation limits or faced earnings headwinds.

What’s Driving the Changes?

Applied Materials, a key supplier to semiconductor manufacturers, stands to benefit from ongoing capex in chip fabrication. Microsoft’s Azure cloud business continues to grow, and its diversified revenue stream provides stability. Delta and Viking are poised to capitalize on sustained air travel demand, though fuel costs remain a risk. UPS, a logistics giant, is seeing e-commerce volumes stabilize, and O’Reilly’s focus on vehicle maintenance offers steady demand.

Removals include Broadcom, which has seen shares surge on AI optimism but may face valuation concerns. Johnson & Johnson, a healthcare conglomerate, is dealing with litigation over talc products, potentially clouding its outlook. ServiceNow, a software firm, has experienced slowing growth in recent quarters, and Dick’s Sporting Goods is vulnerable to shifting consumer discretionary spending.

Market Implications

The rebalancing reflects a cautious but constructive stance. By favoring companies with strong balance sheets and consistent cash flows, Goldman is positioning clients for a potential economic slowdown. The travel and logistics picks indicate a belief that consumer spending on experiences and essential services will remain resilient.

Goldman’s conviction list is updated periodically, and the changes are based on its analysts’ outlooks for earnings and valuation. The list is used by institutional investors as a signal for sector rotation.

Correction: An earlier version of this article incorrectly stated that Viking Holdings was a cruise line. It is actually an aircraft leasing company.