Goldman Sachs has a “Rule of 10” for investing that could serve traders well as they head into the second half of the year. Investors are kicking off the start of the third quarter following an unexpected rally in the first half driven by just a handful of market leaders. While the poor market breadth this year was significant, Goldman Sachs said the trend is typical of most recent years. In fact, the top 10 leaders in the S & P 500 were responsible for a median 32% of the benchmark’s return every year since 1995, the firm’s chief U.S. equity strategist David Kostin said Friday. Without each year’s top 10 names, the broader index would have posted an average annual gain of 8% since 1990; with them, the full index advanced 12% a year. According to Goldman Sachs, it’s vital to identify those names that can lead the market. One characteristic to search for? Superior sales growth. “Superior sales growth has been one common characteristic that lifted the mega-cap tech stocks to become some of the largest in the S & P 500. The seven mega-cap tech stocks grew sales at a 15% CAGR from 2013-19, compared with 4% growth for the S & P 500,” Kostin wrote. “Excepting 2022, these stocks grew sales at a faster rate than the broader index in each year since 2010. Looking ahead, consensus expects these stocks will grow revenues at an 11% CAGR through 2025 versus 4% for the S & P 500,” he said. Now, Goldman Sachs has updated its “Rule of 10” screen to not only identify those stocks posting faster-than-average sales growth, but net income too. These names have expected net income growth of more than 10% from 2021 through 2025. Here are some of the stocks that turned up on Goldman’s latest screen. Chipotle Mexican Grill surfaced in the screen. The fast casual chain has realized and consensus sales growth of 14% per year and net income growth of 24% on a compound annual basis from 2022 to 2025, according to Goldman Sachs. in June, KeyBanc Capital Markets raised its price target, saying Chipotle has “sustained traffic momentum, pricing power, and improving flow-through as inflation on avocados/chicken remains tame.” The stock is up 53% this year. Fortinet is another name appearing on Goldman’s screen. In the period between 2022 and 2025, the cybersecurity firm has realized and consensus sales growth of 21% and compund annual net income growth of 20%. In May, Bank of America upgraded Fortinet to buy from neutral, and raised its price objective, saying Fortinet delivers “high value” to its clients. Fortinet shares are higher by 52% this year. Intuit is also expected to post strong net income growth of 15% through 2025, coupled with sales growth of 13% per annum. In June, Bank of America raised its price objective on the firm behind TurboTax and QuickBooks, saying the firm is an “AI winner.” ServiceNow and Paycom also came up.
Goldman’s ‘Rule of 10’ for investing and stocks meeting that criteria today
