According to Goldman Sachs, being a successful investor and trader during this coming season of earning may be as easy as paying attention to the companies with the best possibility to enlarge the profit margins within the current stretch of inflation across ranges such as raw materials and labor.The keenest investors in the game appear to be already placing that bet.
In a new research note to his clients, David Kostin, Goldman Sachs‘ chief US equity strategist, said that investors have started to award the companies with attractive marginal profits.
The estimation model shows that the profit margins are the second most important factor in the company’s valuations at present, only after the duration of equity.Kostin charted 32 companies with a leg on each side of the health care, industries, materials, staples, and information technologies sectors that have an average net profit margin. They are very much likely to expand them even further in the year 2021. The median return on these yearly stocks has tallied to be 14%.
Some of the best-performing stocks include Old Dominion Freight Line, NortonLifeLock, Applied Materials, Seagate Technologies, and Freeport-McMoran. All of these names seem to have been increasing their earnings beyond 30% this year, as compared to 19% for the S&P 500, excluding the financials and utilities.And all of them have outdone the S&P 500’s yearly gain of 16%. Other stocks such as Netflix and Newmont Corporation have lagged behind the S&P 500’s annual performance. But this could be dignified to return to favor among the investors among the outlook for each company’s profit margins in this year.