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Goldman Sachs: Buy these 30 cheap stocks with stable growth that will start to outperform in a slowing economy
This story is available exclusively to Insider subscribers. Become an Insider and start reading now.
- The S&P 500 is inching toward its 52-week high, even as earnings and economic growth remain weak.
- Goldman Sachs is bullish on stocks with stable earnings growth, even though they’re unloved now.
- Here are 30 stocks to buy for earnings stability while the US economy loses steam.
US stocks are at their highest levels since late last summer as investors look beyond continued weakness in earnings and the economy.
Both S&P 500 earnings growth and economic activity were negative in the first quarter of 2023, according to Goldman Sachs. But David Kostin, the firm’s chief US equity strategist, recently noted that economic activity has bottomed, and earnings may soon follow suit.
Goldman Sachs’ main measuring stick for economic activity is the Current Activity Indicator, a summarization of economic health that includes a variety of hard and soft economic data. And the data says that economic activity is heading for lows last seen in the midst of the pandemic.
A second straight quarter of negative earnings growth didn’t upset markets in Q1 since it was very well-telegraphed ahead of time. Also, the 3% decline was roughly half of the consensus estimate.
Goldman Sachs
And while analysts anticipate a 7% decline in corporate profits in Q2, investors appear to be focused on earnings growth, which is expected to resume in Q3 and continue throughout 2024.
30 stocks to buy for stable earnings growth
Even if earnings and economic activity rebound from their recent lows, softness in GDP and manufacturing data clearly indicates that the US economy has lost momentum.
In this lower-growth environment, Kostin recommends betting on stocks with stable earnings, which have outperformed since 2011 when the ISM Manufacturing index weakens.
However, stocks that boast bankable earnings growth aren’t getting much love from investors. Kostin noted that there’s currently a disconnect between manufacturing data and the relative performance of stable growth stocks, meaning that group of stocks isn’t rising as much as expected.
Investors can bet on a reversion to the mean by buying 30 stocks that Goldman Sachs noted have had stable earnings growth in the past decade. What’s even more enticing is that these firms trade at a historically low valuation premium relative to the median company in the S&P 500.
Below are the 30 stocks that Kostin noted have had earnings growth variability of less than 10% in the last 10 years. Along with each is its ticker, sector, forward price-to-earnings (P/E) ratio, and growth variability for earnings before interest, taxes, depreciation, and amortization (EBITDA).
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Markets Insider
Ticker: SIRI
Sector: Communication Services
Forward P/E ratio: 12x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: CMCSA
Sector: Communication Services
Forward P/E ratio: 11x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: DPZ
Sector: Consumer Discretionary
Forward P/E ratio: 22x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: AZO
Sector: Consumer Discretionary
Forward P/E ratio: 19x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: CL
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Markets Insider
Ticker: PEP
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: PG
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MMC
Sector: Financials
Forward P/E ratio: 22x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: BK
Sector: Financials
Forward P/E ratio: 8x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: NDAQ
Sector: Financials
Forward P/E ratio: 20x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: SPGI
Sector: Financials
Forward P/E ratio: 27x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: FDS
Sector: Financials
Forward P/E ratio: 25x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: RMD
Sector: Health Care
Forward P/E ratio: 31x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MTD
Sector: Health Care
Forward P/E ratio: 30x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: WM
Sector: Industrials
Forward P/E ratio: 26x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: FAST
Sector: Industrials
Forward P/E ratio: 26x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: ROL
Sector: Industrials
Forward P/E ratio: 45x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MMM
Sector: Industrials
Forward P/E ratio: 11x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: HUBB
Sector: Industrials
Forward P/E ratio: 20x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: DOX
Sector: Information Technology
Forward P/E ratio: 15x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Markets Insider
Ticker: ORCL
Sector: Information Technology
Forward P/E ratio: 18x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: CDW
Sector: Information Technology
Forward P/E ratio: 18x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: VRSN
Sector: Information Technology
Forward P/E ratio: 30x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: ROP
Sector: Information Technology
Forward P/E ratio: 27x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: JKHY
Sector: Information Technology
Forward P/E ratio: 28x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: PAYX
Sector: Information Technology
Forward P/E ratio: 23x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: ATR
Sector: Materials
Forward P/E ratio: 27x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: APD
Sector: Materials
Forward P/E ratio: 23x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: AMT
Sector: Real Estate
Forward P/E ratio: 44x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: AWK
Sector: Utilities
Forward P/E ratio: 29x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Source: businessinsider.com
This story is available exclusively to Insider subscribers. Become an Insider and start reading now.
- The S&P 500 is inching toward its 52-week high, even as earnings and economic growth remain weak.
- Goldman Sachs is bullish on stocks with stable earnings growth, even though they’re unloved now.
- Here are 30 stocks to buy for earnings stability while the US economy loses steam.
US stocks are at their highest levels since late last summer as investors look beyond continued weakness in earnings and the economy.
Both S&P 500 earnings growth and economic activity were negative in the first quarter of 2023, according to Goldman Sachs. But David Kostin, the firm’s chief US equity strategist, recently noted that economic activity has bottomed, and earnings may soon follow suit.
Goldman Sachs’ main measuring stick for economic activity is the Current Activity Indicator, a summarization of economic health that includes a variety of hard and soft economic data. And the data says that economic activity is heading for lows last seen in the midst of the pandemic.
A second straight quarter of negative earnings growth didn’t upset markets in Q1 since it was very well-telegraphed ahead of time. Also, the 3% decline was roughly half of the consensus estimate.
Goldman Sachs
And while analysts anticipate a 7% decline in corporate profits in Q2, investors appear to be focused on earnings growth, which is expected to resume in Q3 and continue throughout 2024.
30 stocks to buy for stable earnings growth
Even if earnings and economic activity rebound from their recent lows, softness in GDP and manufacturing data clearly indicates that the US economy has lost momentum.
In this lower-growth environment, Kostin recommends betting on stocks with stable earnings, which have outperformed since 2011 when the ISM Manufacturing index weakens.
However, stocks that boast bankable earnings growth aren’t getting much love from investors. Kostin noted that there’s currently a disconnect between manufacturing data and the relative performance of stable growth stocks, meaning that group of stocks isn’t rising as much as expected.
Investors can bet on a reversion to the mean by buying 30 stocks that Goldman Sachs noted have had stable earnings growth in the past decade. What’s even more enticing is that these firms trade at a historically low valuation premium relative to the median company in the S&P 500.
Below are the 30 stocks that Kostin noted have had earnings growth variability of less than 10% in the last 10 years. Along with each is its ticker, sector, forward price-to-earnings (P/E) ratio, and growth variability for earnings before interest, taxes, depreciation, and amortization (EBITDA).
Markets Insider
Ticker: SIRI
Sector: Communication Services
Forward P/E ratio: 12x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: CMCSA
Sector: Communication Services
Forward P/E ratio: 11x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: DPZ
Sector: Consumer Discretionary
Forward P/E ratio: 22x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: AZO
Sector: Consumer Discretionary
Forward P/E ratio: 19x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: CL
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Markets Insider
Ticker: PEP
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: PG
Sector: Consumer Staples
Forward P/E ratio: 25x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MMC
Sector: Financials
Forward P/E ratio: 22x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: BK
Sector: Financials
Forward P/E ratio: 8x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: NDAQ
Sector: Financials
Forward P/E ratio: 20x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: SPGI
Sector: Financials
Forward P/E ratio: 27x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: FDS
Sector: Financials
Forward P/E ratio: 25x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: RMD
Sector: Health Care
Forward P/E ratio: 31x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MTD
Sector: Health Care
Forward P/E ratio: 30x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: WM
Sector: Industrials
Forward P/E ratio: 26x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: FAST
Sector: Industrials
Forward P/E ratio: 26x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: ROL
Sector: Industrials
Forward P/E ratio: 45x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: MMM
Sector: Industrials
Forward P/E ratio: 11x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: HUBB
Sector: Industrials
Forward P/E ratio: 20x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: DOX
Sector: Information Technology
Forward P/E ratio: 15x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Markets Insider
Ticker: ORCL
Sector: Information Technology
Forward P/E ratio: 18x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: CDW
Sector: Information Technology
Forward P/E ratio: 18x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: VRSN
Sector: Information Technology
Forward P/E ratio: 30x
10-year EBITDA growth variability: 6%
Source: Goldman Sachs
Markets Insider
Ticker: ROP
Sector: Information Technology
Forward P/E ratio: 27x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: JKHY
Sector: Information Technology
Forward P/E ratio: 28x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: PAYX
Sector: Information Technology
Forward P/E ratio: 23x
10-year EBITDA growth variability: 9%
Source: Goldman Sachs
Markets Insider
Ticker: ATR
Sector: Materials
Forward P/E ratio: 27x
10-year EBITDA growth variability: 7%
Source: Goldman Sachs
Markets Insider
Ticker: APD
Sector: Materials
Forward P/E ratio: 23x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: AMT
Sector: Real Estate
Forward P/E ratio: 44x
10-year EBITDA growth variability: 8%
Source: Goldman Sachs
Markets Insider
Ticker: AWK
Sector: Utilities
Forward P/E ratio: 29x
10-year EBITDA growth variability: 5%
Source: Goldman Sachs
Read next
Source: businessinsider.com
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