- Goldman Sachs analysts are wondering how much longer this bull run can last.
- A rising tide lifted all boats on the market, but it’s going to get a lot tougher to pick winners.
- The analysts have found 15 companies they think will outperform thanks to unique fundamentals.
- See more stories on Insider’s business page.
The markets have enjoyed an extraordinary recovery ever since the lows of March 2020, thanks at first to the impressive gains of tech stocks while people worked from home, followed by the exuberance of the economic recovery and the reopening trade.
But investors have to be asking themselves at this point: how much longer can this last?
Analysts at Goldman Sachs have been wondering the exact same thing, and they believe that most of the easy money has already been made.
In a recent note to clients, Goldman Sachs analysts led by Chris Hussey observed that, as of May 6, “70% of companies reporting results beat EPS estimates by more than 1 standard deviation — well above the historical average of 48%.”
In a separate note, John Stoltzfus, the chief investment strategist at Oppenheimer Asset Management, also wrote about the excellent earnings season. According to Stolzfus, as of May 17 91% of firms on the S&P 500 had reported, and 86% of those companies had beaten analyst earnings estimates. In fact, across the 457 companies that had reported at that point, earnings were up 47% on revenue growth of 9.8%.
While it’s great to see companies fully recovered since the depths of the pandemic, the only reason first quarter earnings season was such a blowout was thanks to easy to beat year-over-year expectations. Now that these companies have recovered, writes the Goldman Sachs team, “consensus estimates are bound to catch up to the actual environment and ‘beats’ will become rarer.”
Meanwhile, the reopening trade is losing steam. According to Goldman Sachs, the pro-cyclical stocks that would most benefit from a reopening economy have already done well, with many recovering their pandemic losses and then some.
In addition, the economists at Goldman predict that although the US economy will continue to grow over the rest of the year, growth will peak in the second quarter. They believe that the GDP growth rate will reach 10.5% before decelerating later in the year, which will in turn increase market volatility and hinder returns.
Slowing growth, a reopening trade that’s already priced in, and harder-to-beat earnings expectations combine into one clear picture of a more difficult investing environment for the rest of the year. Luckily, the Goldman Sachs analysts have a solution.
While most investors have set their portfolios on cruise control and simply reaped the rewards of an economic recovery, it’s time to start growing more selective with your investments. Rather than investing in stocks that will outperform thanks to broad macroeconomic tailwinds, the Goldman Sachs analysts put together a list of 15 companies with fundamental growth drivers that will continue to grow regardless of what sort of cycle the rest of the stock market is going through.
Compiled below are 15 “purely idiosyncratic” stocks with “clear, unique drivers” that investors need to know, as well as their price targets, the upsides to those targets, and some additional analyst commentary. The price and upside data are as of May 17.
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