There’s no denying that the coronavirus-induced stock swoon has created opportunities in the market for those willing to grit their teeth and buy in the midst of a calamity. But with the S&P 500 trading roughly 26% higher than its nadir carved out on March 23, many investors may be wondering if they’ve missed the boat.
Luckily, Goldman Sachs has identified a swath of attractive stocks that the market left behind — and they’ve compiled a list of 21 cheap issues that are producing above-average returns on capital.
“These stocks each screen in the fourth quintile of their S&P 500 sector on a combination of valuation metrics, meaning they trade at multiples below their typical sector peer but do not rank among the firms with the most depressed valuations, which tend to face more serious fundamental headwinds,” said Ben Snider, a strategist at the firm.
He continued: “Stocks in that group have generally traded 15% below the sector median, but today trade with a P/E discount of 25%.”
Snider provided a chart of S&P 500 sector valuations compared to their 30-year historical distribution. He notes that there’s a clear opportunity in the fourth quintile.
Goldman Sachs Global Investment Research
“Although these firms carry discounted multiples, most have stronger balance sheets, generate superior returns, and have faster consensus 2019-2021 EPS growth than the median S&P 500 stock,” Snider said.
The way Snider sees it, these stocks are a win-win. Not only are the identified issues generating high returns on capital, but they also aren’t trading at a multiple that would indicate a major foundational issue with the business.
What’s more, Snider says that his each of his picks rank in the top half of their sector using a proprietary measure that combines return on equity, assets, and invested capital.
Listed below are 21 stocks Snider and his Goldman colleagues view as strong portfolio additions. They’re listed by descending valuation percentile for their sector, implying greater upside as the list progresses.