Investor Strategy

GOLDMAN SACHS: Buy these 25 stocks expected to generate the greatest returns on their shareholders’ investments over the next year as market-wide earnings remain low

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Summary List Placement

Despite soaring stock valuations since March, many companies’ fundamentals have weakened as a result of the economic slowdown from COVID-19. 

According to a recent note from Goldman Sachs, this bodes well for future gains across a variety of market sectors, as firms will see a rebound in profit growth as the economic recovery continues into next year.

More specifically, companies will receive a boost to their return on equity (ROE), which can be used to assess the financial health and performance of management of a company. The indicator is known to be a favorite of legendary investor Warren Buffett.  

This aligns with the investment bank’s forecast that downtrodden value stocks, which are strongly correlated with Goldman’s ROE Growth basket of stocks, will see a boost from the recovery. 

“We continue to see opportunity for a near-term rotation towards Value. Potential tax reform represents one near-term catalyst. We previously found that Biden’s proposed plan would have the largest negative earnings impact on popular growth sectors Info Tech, Communication Services, and Health Care,” Goldman Sachs Chief US Equity Strategist David Kostin said in the note. 

Though he sees a Democratic tax plan as a risk, he said nixed tariffs and fiscal stimulus would likely offset a tax increase, at least at the outset, he said.

Kostin added that a COVID-19 vaccine approval this year would likely drive a rotation away from growth stocks and into value. He further explained how the elections could boost value stocks and the ROE Growth basket by extension:

“Similarly, the Biden campaign has proposed an increase in the capital gains tax. The Info Tech and Consumer Discretionary sectors have been the largest sources of capital gains within the US equity market during the last 3, 5, and 10 years.”

To get ahead of gains over the next 12 months amid the economic recovery, Kostin and his team updated their basket of 50 stocks poised to see ROE growth. Below, in no particular order, are the 25 with expected ROE growth above the basket’s median of 18% over the next 12 months.

SEE ALSO: A CIO who earned up to 90% per trade during the March crash offers his 2 best strategies for protecting against Trump-driven volatility — and says the president’s diagnosis will be the catalyst for a further sell-off

1. NewsCorp

Ticker: NWSA

YTD Total Return: 1%

Consensus ROE Growth: 36%

Source: Goldman Sachs

2. Chipotle Mexican Grill

Ticker: CMG

YTD Total Return: 49%

Consensus ROE Growth: 39%

Source: Goldman Sachs

3. Tapestry

Ticker: TPR

YTD Total Return: 41

Consensus ROE Growth: 38%

Source: Goldman Sachs

4. Ross Stores

Ticker: ROST

YTD Total Return: 20%

Consensus ROE Growth: 33%

Source: Goldman Sachs

5. Nike

Ticker: NKE

YTD Total Return: 25%

Consensus ROE Growth: 31

Source: Goldman Sachs

6. Booking Holdings

Ticker: BKNG

YTD Total Return: 17%

Consensus ROE Growth: 29%

Source: Goldman Sachs

7. Ulta Beauty

Ticker: ULTA

YTD Total Return: 12%

Consensus ROE Growth: 26%

Source: Goldman Sachs

8. Cabot Oil & Gas

Ticker: COG

YTD Total Return: 1%

Consensus ROE Growth: 42%

Source: Goldman Sachs

9. Discover Financial Svc.

Ticker: DFS

YTD Total Return: 30%

Consensus ROE Growth: 45%

Source: Goldman Sachs

10. Wells Fargo & Co.

Ticker: WFC

YTD Total Return: 55%

Consensus ROE Growth: 37%

Source: Goldman Sachs

11. Everest Re Group

Ticker: RE

YTD Total Return: 27%

Consensus ROE Growth: 32%

Source: Goldman Sachs

12. Regions Financial

Ticker: RF

YTD Total Return: 30%

Consensus ROE Growth: 27%

Source: Goldman Sachs

13. American Express

Ticker: AXP

YTD Total Return: 18%

Consensus ROE Growth: 24%

Source: Goldman Sachs

14. Dow Inc.

Ticker: DOW

YTD Total Return: 10%

Consensus ROE Growth: 39%

Source: Goldman Sachs

15. Align Technology

Ticker: ALGN

YTD Total Return: 17%

Consensus ROE Growth: 38%

Source: Goldman Sachs

16. Illumina

Ticker: ILMN

YTD Total Return: 7%

Consensus ROE Growth: 37%

Source: Goldman Sachs

17. Dentsply Sirona

Ticker: XRAY

YTD Total Return: 22%

Consensus ROE Growth: 37%

Source: Goldman Sachs

18. IQVIA Holdings

Ticker: IQV

YTD Total Return: 2%

Consensus ROE Growth: 25%

Source: Goldman Sachs

19. Zimmer Biomet Holdings

Ticker: ZBH

YTD Total Return: 8%

Consensus ROE Growth: 19%

Source: Goldman Sachs

20. FedEx

Ticker: FDX

YTD Total Return: 69%

Consensus ROE Growth: 21%

Source: Goldman Sachs

21. Global Payments

Ticker: GPN

YTD Total Return: 2%

Consensus ROE Growth: 29%

Source: Goldman Sachs

22. Western Digital

Ticker: WDC 

YTD Total Return: 41%

Consensus ROE Growth: 28%

Source: Goldman Sachs

23. Fidelity National Info Svc.

Ticker: FIS

YTD Total Return: 7%

Consensus ROE Growth: 22%

Source: Goldman Sachs

24. IPG Photonics

Ticker: IPGP

YTD Total Return: 17%

Consensus ROE Growth: 21%

Source: Goldman Sachs

25. Crown Castle Intl.

Ticker: CCI

YTD Total Return: 20%

Consensus ROE Growth: 45%

Source: Goldman Sachs

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