The firm recommended companies with high and stable profit margins.
That’s because despite the one-time boost to profit from the corporate tax cut, companies face a number of challenges to maintaining profit margins, including rising commodity prices, rising interest rates and wage growth. All of these cut into margins.
“Investors should focus on stocks with high and stable gross margins,” wrote David Kostin, Goldman’s chief U.S. equity strategist, in a report Friday to clients. “The market generally rewards companies with high margins when the outlook for corporate profitability weakens.”
Kostin reiterated his year-end price target of 2,850 for the S&P 500, representing just 3 percent upside from current levels.
Here are five companies in the Goldman Sachs “high and stable gross margins” stock basket recommended by Kostin:
Trader Georgi Bozhidarov