30 cheap stocks to buy in a slowing economy: Goldman Sachs

  • The S&P 500 is inching closer to a 52-week high despite still weak earnings and economic growth.
  • Goldman Sachs is bullish on stocks that are currently unloved but have steady earnings growth.
  • Here are 30 stocks to buy to stabilize earnings as the U.S. economy loses steam.

U.S. stocks are at their highest since the end of summer last year as investors look beyond the continued downturn 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 U.S. equity strategist, recently said economic activity may have bottomed out and earnings could soon follow suit.

Goldman Sachs’ primary measure of economic activity is the Liquidity Index, which summarizes the health of the economy, including a range of hard and soft economic data. And data show that economic activity is heading towards the lowest levels last seen during the pandemic.

GS economic activity bottom

Economic activity (light blue) appears to have bottomed out in recent months.

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Negative earnings growth for two consecutive quarters was well communicated in advance and did not destabilize the market in the first quarter. Also, a 3% decrease in about half of the consensus estimate.

GS Revenue Growth in 2023

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And while analysts expect corporate earnings to fall 7% in the second quarter, investors appear to be focusing on earnings growth, which will rebound from the third quarter and through 2024. expected to continue.

30 stocks to buy for stable profit growth

Even if earnings and economic activity recover from recent lows, GDP weakness And manufacturing data clearly shows that the US economy is losing momentum.

In this low-growth environment, Kostin recommends betting on stable-income stocks that have outperformed since 2011, when the ISM Manufacturing Index faltered.

GS stable inventory manufacturing correlation

Stocks with steady earnings growth (dark blue) typically outperform on a relative basis when the manufacturing data (light blue) weakens (rises because the chart is flipped). Recently, however, that relationship has broken down.

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But stocks that boast bankable earnings growth aren’t well-received by investors. Kostin said there is currently a disconnect between manufacturing data and the relative performance of stable-growth stocks, meaning the group is not performing as well as expected.

Investors can bet on a return to the mean by buying 30 stocks that Goldman Sachs has shown steady earnings growth over the past decade. Even more compelling, these companies trade at historically low valuation premiums relative to the S&P 500 median company.

GS Stable Equity Premium

Stocks with steady earnings growth still trade at a premium, albeit lower than usual today.

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Here are the 30 stocks Kostin pointed to that have fluctuated less than 10% in earnings growth over the past decade. Each also displays the growth volatility of the ticker, sector, expected price-to-earnings ratio (PER), and earnings before interest, taxes, depreciation and amortization (EBITDA).

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