SUPERNEWS

Macro

Goldman's Picks Beat S&P with High ROE Stocks

Goldman Sachs highlights S&P 500's ROE surge to 20.8%, with AI revolution stocks like Nvidia and Amazon poised for growth.

By Alex P. Chase

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4/25, 07:19 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Amazon.com, Inc.
Estee Lauder Companies, Inc.
First Solar, Inc.
General Electric Company
Alphabet Inc.
Meta Platforms, Inc.
NVIDIA Corporation
T-Mobile US, Inc.
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Key Takeaway

  • Goldman Sachs highlights stocks with promising ROE growth, including Estée Lauder (EL) and GE Aerospace (GE), projecting significant profit increases.
  • The S&P 500's return on equity reached a near all-time high at 20.8%, with consumer discretionary and tech sectors leading the gains.
  • First Solar (FSLR) and T-Mobile (TMUS) among top picks for ROE growth, outperforming sector medians significantly.

Equity Market Profitability Soars

Goldman Sachs has highlighted a significant uptick in the S&P 500's return on equity (ROE), which reached 20.8% last year, marking its position in the 98th percentile historically. This 85-basis point increase in 2023, following a 214-basis point contraction in 2022, signals a stabilization in profitability across various sectors. David Kostin, Goldman Sachs' chief U.S. equity strategist, attributes this growth to expanding margins and asset turnover, noting that eight out of the 11 sectors have ROEs above their historical medians. The consumer discretionary sector, in particular, has seen the largest increase, reaching a new high of 35% ROE.

Goldman's ROE Growth Basket

Goldman Sachs has shared a rebalanced ROE growth basket containing 50 stocks selected for their expected profit growth over the next 12 months. This selection forecasts a median ROE growth of 14%, significantly outpacing the S&P 500's median of 1%. Notable companies in this basket include Estée Lauder with an expected ROE growth of 43%, GE Aerospace at 48%, and First Solar at 34%, each surpassing their sector's median consensus ROE growth. These projections come amidst expectations of strong economic growth and lower US yields, which Goldman Sachs believes will support further margin expansion and ROE growth in 2024.

AI Revolution Picks

Evercore ISI has identified several "AI revolutionaries" within the Russell 1000 index, emphasizing companies like Nvidia, Alphabet, Amazon, and Meta as undervalued investments with significant growth potential in the AI sector. Julian Emanuel, senior managing director at Evercore ISI, compares the AI revolution to transformative periods such as the Internet boom, highlighting the potential for generative AI to fundamentally reshape economies. Despite potential short-term volatility, these companies are recommended as long-term core holdings, with a strategic approach to investment that includes protective options strategies.

Street Views

  • David Kostin, Goldman Sachs (Bullish on the S&P 500):

    "Expanding margins and asset turnover boosted the S&P 500′s trailing four-quarter return on equity to 20.8% last year, pushing the measure into its 98th percentile versus history... We expect strong economic growth of 2.9% in 2024 (annual average) and higher profits for the Info Tech and Comm."