These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (2024)

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James Faris

2022-09-24T10:45:00Z

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (1)

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  • High quality stocks have lagged their lower-quality peers so far this year.
  • History suggests that investors will start to choose quality as financial conditions tighten.
  • Goldman Sachs shared 50 quality stocks that appear to have room to rise.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (2)

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These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (4)

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In theory, this year's ugly market environment should have caused investors to flee to the safety of high-quality stocks. But that hasn't quite been the case, according to Goldman Sachs.

Quality companies with high returns on capital trade at an earnings multiple of 18x, which is just a 5% premium to stocks with low returns on capital, wrote David Kostin, the firm's chief US equity strategist, in a mid-September note. While that rate is higher than the 2% median premium in the past 35 years, it's well below the 10% premium of the past decade, he noted.

"Firms with high returns on capital carry a valuation premium close to historical averages despite elevated current pressures on corporate profitability," Kostin wrote in the note.

That disconnect may present an opportunity at a time when sound investments are hard to come by. Higher interest rates in response to high inflation have hurt both stock valuations and fundamentals, which makes quality stocks all the more attractive, in Kostin's view.

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These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (5)

Goldman Sachs

"Pressure on profitability and tightening financial conditions support owning stocks with high returns on capital, which trade at a lower valuation premium than other 'quality' factors such as strong balance sheets and low volatility," Kostin wrote.

Historically, quality stocks have been a strong bet when financial conditions tighten. Since 1990 firms with high returns on capital have outperformed lower-quality counterparts by 9%, while companies with strong balance sheets and those with low volatility have each topped lesser peers in those aspects by 8%, according to Goldman Sachs.

But this year has been an anomaly. Stocks with high returns on capital have lagged those with low returns on capital by 9% in 2022, Kostin noted.

50 cheap quality stocks to buy

While quality stocks haven't performed as expected in 2022, Goldman Sachs thinks the cream — as in stocks with better returns on equity than their sector peers — should rise to the top.

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Below are 50 such names that Goldman Sachs highlighted, along with each stock's ticker, sector, return on invested capital (ROIC), return on assets (ROA), and return on equity (ROE). The "NM" under some stock's ROIC or ROE means "not meaningful."

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1. Alphabet

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (6)

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Ticker: GOOGL

Sector: Communication Services

ROIC: 26%

ROA: 20%

ROE: 29%

Source: Goldman Sachs

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2. Meta

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (7)

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Ticker: META

Sector: Communication Services

ROIC: 24%

ROA: 20%

ROE: 27%

Source: Goldman Sachs

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3. Netflix

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (8)

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Ticker: NFLX

Sector: Communication Services

ROIC: 14%

ROA: 11%

ROE: 30%

Source: Goldman Sachs

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4. Omnicom

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (9)

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Ticker: OMC

Sector: Communication Services

ROIC: 15%

ROA: 5%

ROE: 45%

Source: Goldman Sachs

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5. Domino's Pizza

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (10)

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Ticker: DPZ

Sector: Consumer Discretionary

ROIC: 47%

ROA: 28%

ROE: NM

Source: Goldman Sachs

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6. Yum! Brands

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (11)

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Ticker: YUM

Sector: Consumer Discretionary

ROIC: 40%

ROA: 25%

ROE: NM

Source: Goldman Sachs

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7. NVR

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (12)

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Ticker: NVR

Sector: Consumer Discretionary

ROIC: 38%

ROA: 27%

ROE: 52%

Source: Goldman Sachs

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8. Home Depot

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (13)

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Ticker: HD

Sector: Consumer Discretionary

ROIC: 38%

ROA: 23%

ROE: NM

Source: Goldman Sachs

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9. Pool Corp.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (14)

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Ticker: POOL

Sector: Consumer Discretionary

ROIC: 26%

ROA: 23%

ROE: 70%

Source: Goldman Sachs

10. O’Reilly Automotive

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (15)

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Ticker: ORLY

Sector: Consumer Discretionary

ROIC: 41%

ROA: 18%

ROE: NM

Source: Goldman Sachs

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11. Philip Morris Intl.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (16)

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Ticker: PM

Sector: Consumer Staples

ROIC: 70%

ROA: 22%

ROE: NM

Source: Goldman Sachs

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12. Hershey

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (17)

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Ticker: HSY

Sector: Consumer Staples

ROIC: 26%

ROA: 16%

ROE: 61%

Source: Goldman Sachs

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13. Colgate-Palmolive

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (18)

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Ticker: CL

Sector: Consumer Staples

ROIC: 33%

ROA: 12%

ROE: NM

Source: Goldman Sachs

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14. APA Corp.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (19)

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Ticker: APA

Sector: Energy

ROIC: 60%

ROA: 24%

ROE: NM

Source: Goldman Sachs

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15. Devon Energy

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (20)

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Ticker: DVN

Sector: Energy

ROIC: 32%

ROA: 24%

ROE: 57%

Source: Goldman Sachs

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16. MSCI

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (21)

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Ticker: MSCI

Sector: Financials

ROIC: 24%

ROA: 16%

ROE: NM

Source: Goldman Sachs

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17. Moody's

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (22)

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Ticker: MCO

Sector: Financials

ROIC: 18%

ROA: 12%

ROE: 73%

Source: Goldman Sachs

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18. T. Rowe Price Group

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (23)

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Ticker: TROW

Sector: Financials

ROIC: 26%

ROA: 20%

ROE: 27%

Source: Goldman Sachs

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19. FactSet Research Systems

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (24)

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Ticker: FDS

Sector: Financials

ROIC: 14%

ROA: 14%

ROE: 45%

Source: Goldman Sachs

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20. MarketAxess Holdings

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (25)

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Ticker: MKTX

Sector: Financials

ROIC: 23%

ROA: 15%

ROE: 24%

Source: Goldman Sachs

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21. Marsh & McLennan Cos.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (26)

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Ticker: MMC

Sector: Financials

ROIC: 15%

ROA: 10%

ROE: 32%

Source: Goldman Sachs

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22. CF Industries Holdings

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (27)

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Ticker: CF

Sector: Materials

ROIC: 45%

ROA: 20%

ROE: 93%

Source: Goldman Sachs

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23. Moderna

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (28)

Markets Insider

Ticker: MRNA

Sector: Healthcare

ROIC: 75%

ROA: 57%

ROE: 95%

Source: Goldman Sachs

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24. IDEXX Laboratories

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (29)

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Ticker: IDXX

Sector: Healthcare

ROIC: 50%

ROA: 26%

ROE: NM

Source: Goldman Sachs

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25. Mettler-Toledo Intl.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (30)

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Ticker: MTD

Sector: Healthcare

ROIC: 46%

ROA: 25%

ROE: NM

Source: Goldman Sachs

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26. Waters Corp.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (31)

Markets Insider

Ticker: WAT

Sector: Healthcare

ROIC: 39%

ROA: 23%

ROE: NM

Source: Goldman Sachs

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27. Regeneron Pharmaceuticals

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (32)

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Ticker: REGN

Sector: Healthcare

ROIC: 26%

ROA: 22%

ROE: 31%

Source: Goldman Sachs

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28. Eli Lilly & Co.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (33)

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Ticker: LLY

Sector: Healthcare

ROIC: 31%

ROA: 12%

ROE: 83%

Source: Goldman Sachs

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29. Vertex Pharmaceuticals

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (34)

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Ticker: VRTX

Sector: Healthcare

ROIC: 25%

ROA: 23%

ROE: 30%

Source: Goldman Sachs

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30. Robert Half Intl.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (35)

Markets Insider

Ticker: RHI

Sector: Industrials

ROIC: 42%

ROA: 23%

ROE: 49%

Source: Goldman Sachs

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31. Expeditors Intl.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (36)

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Ticker: EXPD

Sector: Industrials

ROIC: 41%

ROA: 20%

ROE: 45%

Source: Goldman Sachs

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32. United Parcel Service

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (37)

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Ticker: UPS

Sector: Industrials

ROIC: 30%

ROA: 16%

ROE: 77%

Source: Goldman Sachs

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33. Illinois Tool Works

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (38)

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Ticker: ITW

Sector: Industrials

ROIC: 28%

ROA: 17%

ROE: 75%

Source: Goldman Sachs

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34. VeriSign

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (39)

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Ticker: VRSN

Sector: Information Technology

ROIC: NM

ROA: 43%

ROE: NM

Source: Goldman Sachs

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35. Apple

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (40)

Markets Insider

Ticker: AAPL

Sector: Information Technology

ROIC: 65%

ROA: 28%

ROE: NM

Source: Goldman Sachs

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36. KLA Corp.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (41)

Markets Insider

Ticker: KLAC

Sector: Information Technology

ROIC: 41%

ROA: 28%

ROE: 99%

Source: Goldman Sachs

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37. Qualcomm

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (42)

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Ticker: QCOM

Sector: Information Technology

ROIC: 40%

ROA: 29%

ROE: 93%

Source: Goldman Sachs

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38. Texas Instruments

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (43)

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Ticker: TXN

Sector: Information Technology

ROIC: 42%

ROA: 35%

ROE: 66%

Source: Goldman Sachs

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39. Mastercard

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (44)

Markets Insider

Ticker: MA

Sector: Information Technology

ROIC: 50%

ROA: 26%

ROE: NM

Source: Goldman Sachs

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40. Lam Research Corp.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (45)

Markets Insider

Ticker: LRCX

Sector: Information Technology

ROIC: 40%

ROA: 28%

ROE: 75%

Source: Goldman Sachs

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41. Applied Materials

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (46)

Markets Insider

Ticker: AMAT

Sector: Information Technology

ROIC: 37%

ROA: 26%

ROE: 56%

Source: Goldman Sachs

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42. HP Inc.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (47)

Markets Insider

Ticker: HPQ

Sector: Information Technology

ROIC: 49%

ROA: 16%

ROE: NM

Source: Goldman Sachs

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43. Microsoft

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (48)

Markets Insider

Ticker: MSFT

Sector: Information Technology

ROIC: 30%

ROA: 21%

ROE: 45%

Source: Goldman Sachs

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44. Teradyne

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (49)

Markets Insider

Ticker: TER

Sector: Information Technology

ROIC: 37%

ROA: 23%

ROE: 36%

Source: Goldman Sachs

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45. Seagate Tech Holdings

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (50)

Markets Insider

Ticker: STX

Sector: Information Technology

ROIC: 32%

ROA: 18%

ROE: NM

Source: Goldman Sachs

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46. Visa

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (51)

Markets Insider

Ticker: V

Sector: Information Technology

ROIC: 28%

ROA: 18%

ROE: 47%

Source: Goldman Sachs

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47. Weyerhaeuser

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (52)

Markets Insider

Ticker: WY

Sector: Real Estate

ROIC: 17%

ROA: 14%

ROE: 25%

Source: Goldman Sachs

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48. Public Storage

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (53)

Markets Insider

Ticker: PSA

Sector: Real Estate

ROIC: 13%

ROA: 12%

ROE: 43%

Source: Goldman Sachs

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49. NRG Energy Inc.

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (54)

Markets Insider

Ticker: NRG

Sector: Utilities

ROIC: 21%

ROA: 12%

ROE: 64%

Source: Goldman Sachs

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50. WEC Energy Group

These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (55)

Markets Insider

Ticker: WEC

Sector: Utilities

ROIC: 6%

ROA: 4%

ROE: 13%

Source: Goldman Sachs

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These 50 quality cheap stocks will deliver strong returns on capital as high inflation and interest rates crush valuations, according to Goldman Sachs (2024)

FAQs

What stocks is Goldman Sachs buying? ›

In addition to Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA), Visa Inc. (NYSE:V) is one of Goldman Sachs' top stock picks for 2024. Click to continue reading and see Goldman Sachs' Top 5 Stock Picks for 2024.

What is the stock market forecast for Goldman Sachs? ›

GS Stock 12 Month Forecast

Based on 21 Wall Street analysts offering 12 month price targets for Goldman Sachs Group in the last 3 months. The average price target is $452.32 with a high forecast of $493.00 and a low forecast of $360.00. The average price target represents a 12.21% change from the last price of $403.11.

What is Goldman Sachs stock forecast for 2024? ›

Recently, Goldman Sachs's Chief U.S. Equity Strategist, David Kostin, raised his year-end S&P 500 index target to 5200 (from 5100), the driver of the revision being “increased profit estimates.” “Our upgraded 2024 EPS forecast of $241 (8% growth) stands above the median top-down strategist forecast of $235 (6% growth) ...

Is it a good time to buy Goldman Sachs stock? ›

Is Goldman Sachs stock a Buy, Sell or Hold? Goldman Sachs stock has received a consensus rating of buy. The average rating score is and is based on 67 buy ratings, 25 hold ratings, and 1 sell ratings.

How much money do you need to invest in Goldman Sachs? ›

Cash sweep and bank deposits are offered only through our affiliated bank. As noted above, clients must generally have a minimum of $10 million in investable assets to open an account.

Who owns the most Goldman Sachs stock? ›

According to the latest TipRanks data, approximately 37.12% of Goldman Sachs Group (GS) stock is held by retail investors. Who owns the most shares of Goldman Sachs Group (GS)? Vanguard owns the most shares of Goldman Sachs Group (GS).

Is it smart to invest in Goldman Sachs? ›

Goldman Sachs stock forecasts for 2023 and beyond

A total of nine analysts rated the stock a 'buy', five a 'hold' and one a 'sell'. The average Goldman Sachs share price forecast stood at $402.3 for the next 12 months. The highest GS stock forecast was $495 and the lowest $290.

Who are the largest owners of Goldman Sachs? ›

We note that hedge funds don't have a meaningful investment in Goldman Sachs Group. The Vanguard Group, Inc. is currently the company's largest shareholder with 8.3% of shares outstanding. In comparison, the second and third largest shareholders hold about 6.7% and 5.7% of the stock.

What are the best stocks to invest in 2024? ›

*Based on current CFRA 12-month target prices.
  • Nvidia Corp. (NVDA) ...
  • Alphabet Inc. (GOOG, GOOGL) ...
  • Meta Platforms Inc. (META) ...
  • JPMorgan Chase & Co. (JPM) ...
  • Tesla Inc. (TSLA) ...
  • Mastercard Inc. (MA) ...
  • Salesforce Inc. (CRM) ...
  • Advanced Micro Devices Inc. (AMD)

Will 2024 be good for stocks? ›

Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year. The healthcare sector is expected to generate a market-leading 17.8% earnings growth in 2024, while the information technology sector is expected to lead the way with 9.3% revenue growth.

What are the best investment sectors in 2024? ›

In 2024, that means communication services, information technology and financials, as the best performers, are on their way to good things for the remaining 10 months. Meanwhile, the tail-end trio that will keep on with their losing ways are materials, utilities and real estate.

Who is the largest shareholder of Goldman Sachs? ›

Largest shareholders include Vanguard Group Inc, BlackRock Inc., State Street Corp, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, VFINX - Vanguard 500 Index Fund Investor Shares, Geode Capital Management, Llc, Capital World Investors, Morgan Stanley, Spdr Dow Jones Industrial Average Etf Trust, and ...

Who owns the largest share of Goldman Sachs? ›

According to the latest TipRanks data, approximately 37.12% of Goldman Sachs Group (GS) stock is held by retail investors. Who owns the most shares of Goldman Sachs Group (GS)? Vanguard owns the most shares of Goldman Sachs Group (GS).

What is Goldman Sachs favorite media stock? ›

Warner Bros. Discovery jumps 7% after Goldman names it 'favorite media stock' for '23.

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