‘Harder to find’: Goldman Sachs names stocks with growth at a ‘reasonable’ price — and more
Stocks with “reasonably valued” growth are becoming harder to find — given the increasing overlap between high-growth and expensive stocks, according to Goldman Sachs. It said in a July note that the growth-driven rally this year has brought the “valuation premium” of high-growth stocks close to 10-year highs. Goldman did two screens against that backdrop. First screen The first focused on stocks with growth at a reasonable price. The bank screened for double-digit sales growth (2022-2025 compound annual growth rate) — at least 10% — and a low price-earnings-growth ratio below 1.0. “We believe the recent outperformance of growth creates scarcity of high growth that is still reasonably valued and should drive investors preference for stocks that are poised to grow into their multiples,” Goldman analysts wrote. Here are four of the 18-buy-rated stocks that turned up in the screen, accompanied by Goldman’s comments: Nvidia : Strong growth can be expected from both training and inferencing usage thanks to generative artificial intelligence. In addition, recent results show a resumption in gaming revenue growth. SolarEdge Technologies : Investors can also look for strong growth from favorable geographic and end-market exposure. Europe is set to be among the fastest-growing regions for solar installations, and accounts for about 60% of total shipments for SolarEdge. BioMarin Pharmaceutical : The U.S. biotech firm is an “attractive profitable-growth play” driven by its key drugs Roctavian and Voxzogo. Shift4 Payments : The firm is well positioned to compete with new entrants to the small and medium businesses payments landscape. “Its refreshed, modern restaurant POS [point of sale] platform and new verticals should drive market share growth,” Goldman analysts wrote. Second screen The other screen centered on stocks with underappreciated margin expansion. Goldman screened for buy-rated stocks it expects can deliver at least 5% sales growth in both 2023 and 2024; positive incremental operating margins in each year; and operating margin expansion of at least 150 basis points between 2022 and 2024. “We believe margins will remain in focus through 2023 and into 2024,” Goldman said. “We expect companies that are able to deliver top-line growth alongside margin expansion as better positioned.” These stocks are among the 18 that showed up in the screen: Amazon : Goldman noted its strong revenue and margin performance over a multi-year investment cycle. It pointed out that its cloud computing unit AWS continues to benefit from a structural growth opportunity. Johnson Controls International : In the longer term, Goldman said, the U.S. building products company’s service business has the potential to create more growth and margin expansion opportunities — ultimately contributing to “solid” free cash flow. “Favorable end-market exposure to education and ‘clean’ buildings, along with cost savings initiatives should drive both growth and margin expansion,” the bank said. Constellation Brands : Goldman said the alcoholic beverage company is “one of the best growth stories” in the consumer staples sector amid an “increasing scarcity of growth.” — CNBC’s Michael Bloom contributed to this report.
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