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“Low risk-adjusted returns, high correlation, slowing economic growth and rising macroeconomic and policy uncertainty have made equity investing challenging,” says Goldman Sachs’ equity strategy team.
In a new note to clients, the team, led by David Kostin, recommends buying their High Quality Stock Basket instead of the S&P 500. The basket consists of 50 stocks that rank highly when it comes to balance sheet strength, sales growth stability, earnings growth reliability, and ROE. They also don’t experience major short-term sell-offs often.
These stocks tend to have high dividend yields, significant foreign sales, and premium valuations.
Goldman recommends buying the whole basket of 50 stocks. But we pulled the 18 stocks that scored the highest based on the team’s screening methodology.
Sector: Internet Retail
Average ROE: 47%
2012E Sales Growth: 32%
2012E Earnings Growth: 75%
per cent US Sales: 50%
Dividend Yield: 0.0%
Source: Goldman Sachs
Sector: Oil & Gas Equipment & Services
Average ROE: 16%
2012E Sales Growth: 17%
2012E Earnings Growth: 39%
per cent US Sales: 41%
Dividend Yield: 0.0%
Source: Goldman Sachs
Sector: Aerospace & defence
Average ROE: 23%
2012E Sales Growth: 6%
2012E Earnings Growth: 12%
per cent US Sales: 53%
Dividend Yield: 2.6%
Source: Goldman Sachs
Sector: Household Products
Average ROE: 137%
2012E Sales Growth: 5%
2012E Earnings Growth: 9%
per cent US Sales: 23%
Dividend Yield: 2.6%
Source: Goldman Sachs
Sector: Health Care Equipment
Average ROE: 22%
2012E Sales Growth: 7%
2012E Earnings Growth: 11%
per cent US Sales: 65%
Dividend Yield: 1.4%
Source: Goldman Sachs
Sector: Oil & Gas Equipment & Services
Average ROE: 12%
2012E Sales Growth: 19%
2012E Earnings Growth: 26%
per cent US Sales: 34%
Dividend Yield: 0.7%
Source: Goldman Sachs
Sector: Restaurants
Average ROE: 97%
2012E Sales Growth: 6%
2012E Earnings Growth: 12%
per cent US Sales: 36%
Dividend Yield: 2.2%
Source: Goldman Sachs
Sector: Aerospace & defence
Average ROE: 20%
2012E Sales Growth: 4%
2012E Earnings Growth: 7%
per cent US Sales: 82%
Dividend Yield: 3.1%
Source: Goldman Sachs
Sector: Apparel Accessories & Luxury Goods
Average ROE: 43%
2012E Sales Growth: 12%
2012E Earnings Growth: 15%
per cent US Sales: 70%
Dividend Yield: 1.5%
Source: Goldman Sachs
Sector: Retail REITS
Average ROE: 15%
2012E Sales Growth: 3%
2012E Earnings Growth: 6%
per cent US Sales: 100%
Dividend Yield: 2.8%
Source: Goldman Sachs
Sector: Drug Retail
Average ROE: 17%
2012E Sales Growth: 3%
2012E Earnings Growth: 11%
per cent US Sales: 100%
Dividend Yield: 2.7%
Source: Goldman Sachs
Sector: Freight and Logistics
Average ROE: 29%
2012E Sales Growth: 12%
2012E Earnings Growth: 16%
per cent US Sales: 89%
Dividend Yield: 1.6%
Source: Goldman Sachs
Sector: Electric Utilities
Average ROE: 15%
2012E Sales Growth: 5%
2012E Earnings Growth: 6%
per cent US Sales: 100%
Dividend Yield: 4.4%
Source: Goldman Sachs
Sector: Apparel Retail
Average ROE: 43%
2012E Sales Growth: 7%
2012E Earnings Growth: 12%
per cent US Sales: 77%
Dividend Yield: 1.3%
Source: Goldman Sachs
Sector: Soft Drinks
Average ROE: 35%
2012E Sales Growth: 3%
2012E Earnings Growth: 8%
per cent US Sales: 53%
Dividend Yield: 3.4%
Source: Goldman Sachs
Sector: Health Care Equipment
Average ROE: 23%
2012E Sales Growth: 7%
2012E Earnings Growth: 11%
per cent US Sales: 51%
Dividend Yield: 2.2%
Source: Goldman Sachs
Sector: IT Consulting & Other Services
Average ROE: 25%
2012E Sales Growth: 22%
2012E Earnings Growth: 20%
per cent US Sales: 78%
Dividend Yield: 0.0%
Source: Goldman Sachs
Sector: Specialty Chemical
Average ROE: 23%
2012E Sales Growth: 6%
2012E Earnings Growth: 13%
per cent US Sales: 52%
Dividend Yield: 1.3%
Source: Goldman Sachs
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