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Goldman Sachs: Buy These 10 Value Stocks to Beat the S&P 500

Last Updated September 23, 2020 1:54 PM
Simon Chandler
Last Updated September 23, 2020 1:54 PM
  • Goldman Sachs predicted that these ten companies would beat the stock market this year.
  • Its list includes Monster, Regeneron Pharmaceuticals, Facebook, Mastercard, and Alphabet.
  • But the uncertainty of the coronavirus has already frustrated some of Goldman’s previous predictions.

Goldman Sachs has named ten companies that investors should buy if they want a chance to beat the stock market this year. These include household names like Facebook, Alphabet, and Mastercard, all of which have balance sheets strong enough to survive a coronavirus recession.

More interestingly, Goldman recommends lesser-known stocks like Monster Beverages and Regeneron Pharmaceuticals, which has recently been buoyed by hopes of a coronavirus treatment.

So while the usual suspects in tech and finance will cope well during the coronavirus shutdown, Wall Street expects some new names to outperform the broad S&P 500 too.

Goldman Sachs Predicts Strong Balance Sheets & Lower Valuations Will Beat the Market

In compiling its list, Goldman Sachs looked for companies with strong balance sheets . It narrowed the field down further by picking companies that aren’t in the top 20% of valuations in their sectors.

stocks to buy to beat the S&P 500
Goldman’s list is an interesting mix of household names and lesser-known stocks. | Source: Goldman Sachs/CNBC 

As seen in the table above, Goldman ranked the shares according to their Altman Z-Score . This evaluates companies in terms of their earnings, working capital, sales, and market value. Basically, it’s an estimate of how likely a company is to default.

Goldman’s analysis further evaluates each company’s price-to-2021-earnings ratio. Essentially, this is a measure of how under/overvalued a company’s stock price is in relation to its likely earnings in 2021.

Monster Beverages & Regeneron Are Beating the Stock Market

Putting this all together, Goldman Sachs came up with a few surprises.

Its top stock pick is Monster Beverages. Yes, the company that makes the Monster energy drink has a strong balance sheet and isn’t valued particularly highly.

Monster stock price
Monster Beverages is Goldman’s top stock pick according to this analysis. | Source: Yahoo Finance 

As Goldman Sachs notes, its stock price is down just 5% in 2020, compared to a plunge of more than 15% for the Dow Jones Industrial Average (DJIA).

Next is Skyworks Solutions, a California semiconductor manufacturer. Coronavirus lockdown or not, its products are likely to remain in demand. That said, Goldman failed to point out that its stock has fallen by 17% this year, so it’s hardly outperforming the market – yet.

Skyworks Solutions stock price
SWKS has tracked more closely to the broader stock market this year than Monster has. | Source: Yahoo Finance 

Third is Regeneron Pharmaceuticals, which is testing a range of possible coronavirus treatments. Its stock price has risen by 41% since January, so it’s definitely beating the market even now.

Regeneron Pharmaceuticals stock price
Regeneron has defied the stock market’s early-year pullback. | Source: Yahoo Finance 

At fourth and fifth, we have Arista Networks (computer networking) and Texas Instruments (semiconductor manufacturer).

Rounding out the rest of the top ten are some familiar names: Facebook, Mastercard, Alphabet, and video game publisher Electronic Arts. Then there’s Garmin, which is another tech company, making a range of wearables and GPS trackers.

Goldman Sachs is confident that these stocks are well-placed to beat the stock market in 2020. But the bank admits that things could change if we see a faster economic restart or a milder economic downturn.

Stock-Picking Amid Economic Uncertainty

As confident as Goldman Sachs may be that these ten stocks will beat the market, the uncertainty of the current economic and global climate could easily make a mockery of their predictions.

In fact, this has already happened on more than one occasion to Goldman.

In December, it predicted that the U.S. economy was effectively “recession-proof.” Pretty much every economic analyst now agrees that America is currently in a recession .

And in March, Goldman said that the U.S. economy would contract by 24% in Q2. It revised this downwards just one week later, to an expected drop of 34%.

So when it highlights companies that are likely to beat the stock market, take its advice with caution. Do your own research, and maybe say a prayer, because no one still really knows where the coronavirus is taking us.

Disclaimer: The opinions in this article do not represent investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.