GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020 (2024)

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Marley Jay

2020-04-05T13:15:00Z

GOLDMAN SACHS: These 13 cheap stocks are poised for years of better-than-expected profits — and they're must-haves as the coronavirus wipes out earnings in 2020 (1)

David Kostin — the chief US equity strategist at Goldman Sachs —says some of the largest S&P 500 companies are going to post better earnings over the next five years than their stock prices suggest.
As the global economy sinks into a deep recession, there's little hope of earnings growth this year, which might make the long-term bargains Kostin is identifying more valuable.
Goldman thinks S&P 500 profits will plunge 33% this year as a result of the coronavirus pandemic and the widespread economic shutdowns and other damages associated with it.
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Wall Street forecasts from early 2020 look like they could have come from another world.

As recently as mid-February, David Kostin — the chief US equity strategist for Goldman Sachs — thought companies would report 6% earnings-per-share growth in 2020. At that time, corporate America had just completed a better-than-expected earnings season.

That's ground much of the global economy to a halt. The world is trying to stop the coronavirus pandemic, and experts are trying to figure out how bad the job losses and sudden recession will get — as well as how companies will hold up. As a result, Kostin's firm now expects profits to plunge 33% this year.

He and his team are trying to help investors make sense of it all by identifying companies that could outperform in the years ahead. They're doing that by finding companies with underappreciated earnings growth.

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With little hope of growth in 2020, Kostin's group examined the 80 largest S&P 500 companies and focused on their relative earnings-per-share growth compared to the growth of the index. They calculated the implied growth rate that would be required to justify the price of each company's stock.

The analysis is intended to find the companies that are the most undervalued based on their expected growth over the next five years.

The list the Goldman team produced includes two types of earners. Some have posted much stronger profit growth than the average S&P 500 company over the past 10 years, but are being traded as if they'll beat it by a much narrower margin in the future. Others have underperformed, but are trading as if they will fare much worse over the next five years than they have in the past.

Here are the 13 companies that are the most undervalued based on Kostin and company's analysis. They are ranked from lowest to highest based on the size of the gap between their past and current implied earnings growth rates.

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13. Wells Fargo

Ticker: WFC

Sector: Financials

Market cap: $117.8 billion

Implied relative EPS growth rate, 2010-2020: -8.8%

Current relative growth rate: -19.7%

Growth rate gap: 12.5%

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12. AbbVie

Ticker: ABBV

Sector: Healthcare

Market cap: $108.9 billion

Implied relative EPS growth rate, 2010-2020: -9.1%

Current growth rate: -21.6%

Growth rate gap: 12.6%

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11. Bank of America

Ticker: BAC

Sector: Financials

Market cap: $181.5 billion

Implied relative EPS growth rate, 2010-2020: -10.7%

Current growth rate: -19.7%

Growth rate gap: 13.2%

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10. Crown Castle International

Ticker: CCI

Sector: Real estate

Market cap: $59.6 billion

Implied relative EPS growth rate, 2010-2020: 43.7%

Current growth rate: 29.2%

Growth rate gap: 14.5%

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9. Altria Group

Ticker: MO

Sector: Consumer staples

Market cap: $68.4 billion

Implied relative EPS growth rate, 2010-2020: -7.6%

Current implied growth rate: -22.8%

Growth rate gap: 15.2%

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8. Citigroup

Ticker: C

Sector: Financials

Market cap: $83.9 billion

Implied relative EPS growth rate, 2010-2020: -10.7%

Current growth rate: -26.1%

Growth rate gap: 15.5%

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7. Amazon

Ticker: AMZN

Sector: Consumer discretionary

Market cap: $956.9 billion

Implied relative EPS growth rate, 2010-2020: 52.8%

Current implied growth rate: 36.6%

Growth rate gap: 16.2%

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6. Allergan

Ticker: AGN

Sector: Healthcare

Market cap: $57.2 billion

Implied relative EPS growth rate, 2010-2020: 0.9%

Current implied growth rate: -16.4%

Growth rate gap: 17.8%

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5. Bristol-Myers Squibb

Ticker: BMY

Sector: Healthcare

Market cap: $123.4 billion

Implied relative EPS growth rate, 2010-2020: 0.4%

Current growth rate: -17.4%

Growth rate gap: 18.3%

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4. Netflix

Ticker: NFLX

Sector: Communication services

Market cap: $160.3 billion

Implied relative EPS growth rate, 2010-2020: 53.1%

Current implied growth rate: 34.8%

Growth rate gap: 18.3%

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3. Vertex Pharmaceuticals

Ticker: VRTX

Sector: Healthcare

Market cap: $60.5 billion

Implied relative EPS growth rate, 2010-2020: 31.7%

Current implied growth rate: 12.5%

Growth rate gap: 19.2%

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2. Charter Communications

Ticker: CHTR

Sector: Communication services

Market cap: $100.5 billion

Implied relative EPS growth rate, 2010-2020: : 34.6%

Current implied growth rate: 13.7%

Growth rate gap: 20.9%

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1. Salesforce

Ticker: CRM

Sector: Information technology

Market cap: $119.4 billion

Implied relative EPS growth rate, 2010-2020: 51.1%

Current implied growth rate: 23.5%

Growth rate gap: 27.6%