Chris Hondros
Goldman Sachs expects a stable environment for rates and economic growth in 2024.
The equity strategy team predicts that the S&P 500 (SP500) (NYSEARCA:NYSEARCA:SPY) (IVV) (VOO) will close next year only slightly higher at 4,700.
“Consistent with our rates strategists’ and economists’ forecasts, interest rates will likely remain high and the Fed will likely not cut the policy rate until late 2024, placing a cap on valuations,” strategist David Kostin wrote.
“With no benefit from valuation expansion, earnings growth will drive returns,” Kostin said. “We identify environments since 1995 in which both market pricing of growth and interest rates do not increase or decrease drastically over 6 month periods and find that our long/short Growth and Returns factors typically perform well during these periods.”
They recommend “S&P 500 stocks with balance sheet strength, stable sales and earnings growth, high return on equity, and low historical drawdown risk.”
“Although starting valuations are not highly predictive of returns over the near term, elevated multiples for growth stocks represent a risk for this trade,” he said. “The NTM P/E for the median stock in the screen is high relative to the median stock in the index.”
“But the median stock in the screen currently trades at an 8% lower P/E multiple compared with its valuation at the end of July when the market reached its most recent high.”
The S&P stocks with 2025E sales growth in top third of stocks and returns (ROIC, ROA, ROE) in the top quartile:
- Enphase Energy (ENPH) 2025 estimated sales growth 33%
- ServiceNow (NOW) 21%
- Eli Lilly (LLY) 20%
- Nvidia (NVDA) 19%
- Albemarle (ALB) 18%
- EQT (EQT) 17%
- Lam Research (LRCX) 15%
- Microsoft (MSFT) 14%
- Chipotle (CMG) 14%
- Arista Networks (ANET) 13%
- Lululemon (LULU) 13%
- Texas Instruments (TXN) 13%
- Airbnb (ABNB) 13%
- Adobe (ADBE) 12%
- Cadence Design Systems (CDNS) 12%
- Meta Platforms (META) 12%
- Autodesk (ADSK) 12%
- Alphabet (GOOGL) (GOOG) 10%
- IDEXX Laboratories (IDXX) 10%
- Edwards Lifesciences (EW) 10%
- Old Dominion Freight Line (ODFL) 9%
- ON Semiconductor (ON) 9%
- Keysight Technologies (KEYS) 9%5
- Applied Materials (AMAT) 9%
- Robert Half (RHI) 9%
- Vertex Pharmaceuticals (VRTX) 9%
