U.S. stocks could be capable of big gains in 2019, but investors still need to be careful, Goldman Sachs Group Inc. (GS.N) said.

American economic growth that’s expected to be around 1.9 per cent on average this year, combined with an anticipated 1-percentage-point deceleration, is “often associated with positive stock returns,” strategists led by David Kostin wrote in a note dated Jan. 4. They said current low valuations suggest upside potential, though recommended caution amid low cash allocations and a volatile trading environment.

“Investors should own companies with ‘quality’ attributes,” the strategists wrote. “We recommend investors increase portfolio defensiveness” and highlight “stocks well-positioned to outperform during an uncertain economic environment.”

The “margin of safety” screen looked for companies via a valuation analysis that picked “stocks that would still trade at less than a 10 per cent premium to the historical median if earnings sharply decline. This measure is particularly relevant in light of Apple’s negative preannouncement on Wednesday amid the slowdown in China’s economy,” the report said.

Other factors for selection included a strong balance sheet, a non-zero dividend yield and limited popularity among hedge funds.

Stocks that made the cut include: FedEx Corp., KLA-Tencor Corp., United Parcel Service Inc., Walgreens Boots Alliance Inc., International Business Machines Corp., Essex Property Trust Inc., AmerisourceBergen Corp., Tyson Foods Inc., C.H. Robinson Worldwide Inc. and Altria Group Inc.

Kostin holds a year-end target on the S&P 500 of 3,000, just above the 2,980 median of estimates from strategists tracked by Bloomberg. That would be a gain of 18 per cent from Friday’s close.

“Weakness in recent regional Fed surveys, the ISM manufacturing index, and China manufacturing PMIs have weighed on investor sentiment,” the report said. Stabilizing economic data in the U.S. and globally could “lift investors’ confidence regarding the longevity of the current expansion, which in July will mark its 10th anniversary (the longest since at least 1850).”