US Stocks: Oppenheimer makes rare cuts to top US investment banks, backs alternative asset managers

Brokerage Oppenheimer downgraded major U.S. investment banks including Goldman Sachs and Morgan Stanley in an unusual move on Tuesday, saying current valuations leave limited room for further gains despite a favorable operating environment. Instead, it recommended investors sell large-cap investment banks and buy alternative asset managers, a group caught ‌in a sharp ⁠selloff that ⁠many analysts view as overdone amid concerns about private-credit exposure.

* Shares of Morgan ​Stanley were down 1.4% in early trade, while Goldman Sachs fell about 1% ​after Oppenheimer downgraded both banks to "underperform" from "perform."

* The brokerage also cut Citigroup and Bank of America to "perform" from "outperform," sending their shares down about 1.3% each.


* Oppenheimer said while it saw ⁠nothing in ‌the immediate future to drive investment bank stocks ​off their ​growth or returns trajectory, it believes they have ⁠moved into the later part of an expansionary cycle.

* "While the ​cycle may well go on for another ​12-18 months or more, we'd rather not wait around for the warning signs to appear, and thus particularly in the case of the investment banks, we are more inclined to take the money and run," Oppenheimer analysts wrote.

* Instead of exposure to large-cap ‌banks, investors should focus their resources on commercial banks like US Bancorp and PNC Financial Services, the brokerage said, given ​they are ​in a relatively ⁠early phase of expansion.

* Among alternative asset managers, the brokerage recommended Ares Management, Blackstone and KKR

* Shares of alternative asset managers have ​lagged this year as investors grow wary of private-credit exposure and the risk of elevated redemptions from flagship funds, despite analysts arguing those concerns have been overdone.

* "We suggest that investors maintain their financial exposure by re-deploying the funds raised into the Alts," Oppenheimer said.