Focusing on stocks with high projected earnings growth is an investment strategy for 2020 suggested by the portfolio investment strategy group at Goldman Sachs, led by David Kostin, their chief U.S. equity strategist. Drawing upon data from FactSet Research Systems, Goldman lists the 100 stocks in the S&P 500 Index that are forecasted to deliver the largest year-over-year percentage increases in earnings per share (EPS) during 2020, based on consensus analyst estimates.
For this analysis, Goldman included stocks in all 11 sectors of the S&P 500. The top 10 in terms of projected 2020 EPS growth rates are: Charter Communications Inc. (CHTR), 88%, Netflix Inc. (NFLX), 63%, ExxonMobil Corp. (XOM), 39%, Facebook Inc. (FB), 36%, Bristol-Myers Squibb Co. (BMY), 34%, Adobe Inc. (ADBE), 27%, Amazon.com Inc. (AMZN), 26%, Nvidia Corp. (NVDA), 26%, Fiserv Inc. (FISV), 26%, and Qualcomm Inc. (QCOM), 24%.
- Goldman Sachs has identified stocks will high forecasted EPS growth.
- Since stock prices follow earnings, these stocks may outperform.
- However, current prices may already anticipate such high growth.
Significance for Investors
The projected 2020 average EPS growth rate of 9% for the entire S&P 500 would be a major improvement over the 0% actual growth rate for 2019, based on current estimates. Looking at sectors, those expected to do better than the index are: energy, 19%, materials, 16%, industrials, 14%, consumer discretionary, 13%, real estate, 12%, and information technology, 10%.
In 2019, Goldman notes that information technology beat the S&P 500. Additionally, out of 27 sectors, styles, and strategies tracked by Goldman, information technology, communication services, and financials were among the six that outperformed the S&P 500.
The 10 stocks that are expected to lead in terms of 2020 EPS growth represent a number of industries. Bristol-Myers Squibb is a drug maker. Abobe is a software provider. Facebook is a leading social media company, whose properties also include Instagram, Messenger, and WhatsApp, and sells Oculus 3D glasses used by video game players. Netflix offers video streaming. Charter Communications offers TV, internet, and voice services under the Spectrum brand. ExxonMobil is an oil exploration, refining, and distribution company. Nvidia and Qualcomm are semiconductor manufacturers. Amazon.com is a leading online retailer and provider of cloud computing services. Fiserv is a financial services technology company, including applications in payments processing.
The market is forward-looking, and big boosts in EPS during 2020 may be already priced in. If so, any earnings disappointments may send their shares tumbling.