20 stocks that could go up to 39% as this key metric keeps improving

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It’s been another great year for US stocks – so far – as the S&P 500 has returned 17%, after gaining 18% in 2020. Investors know stocks are anything but cheap, so a good question to ask is what will the market reward for the rest of the year and 2022?

Goldman Sachs analyst David Kostin wrote in the company’s US Weekly Kickstart note to clients on July 9 that investors have “started rewarding companies with attractive margin profiles.” By this he means the net margin, which is the net income of a business divided by the net income.

Comparisons of net income margins may be more meaningful within industries, as some by their nature have low margins when measured in this way. Kostin wrote: “Our sector neutrality factor of stocks with the highest versus the lowest profit margins has also started to outperform.”

He and a team of analysts from Goldman Sachs have scrutinized the S&P 500 SPX,
+ 0.33%
for equities with “above-average net interest margins, realized margin growth of more than 50bp [basis points] in 2020, and expected margin growth of more than 50bp in each of the next two years.

This has led to a group of 32 large-cap stocks in six sectors expected to increase their net margins by a median of 201 basis points this year and an additional 105 basis points in 2022, after defying the odds with an increase. profit margin of at least 50 basis points. during the pandemic year of 2020. The six sectors were communications services, consumer staples, health care, industrials, information technology and materials.

Stocks that made Goldman’s list include Netflix Inc. NFLX,
-0.16%,
Broadcom Inc. AVGO,
+1.07%
and Philip Morris International Inc. PM,
-0.81%.

Widescreen

To start with a larger group of stocks and eventually produce a list with the highest upside potential, we started with the S&P Composite 1500 SP1500 Index,
+ 0.33%,
which is made up of the S&P 500, the S&P 400 Mid Cap Index MID,
+ 0.21%
and the S&P Small Cap 600 SML index,
+ 0.27%.
We therefore adopted an “unfair” approach of filtering by net margin. whatever the sector or industry and favor companies that have sailed until 2020.

All numbers on the screen are for calendar years, not fiscal years, which for many businesses do not match the calendar.

Here is the screen:

  • Starting with 1,500 companies, the list has been reduced to 747 with net margins above the median of 7.96% in 2019.

  • 226 of these companies improved their net margins by at least 50 basis points in 2020.

  • 124 are expected to improve their net margins by at least 50 basis points in 2021.

  • And 54 of them are expected to improve their net margins by an additional 50 basis points or more in 2022.

  • 51 of the stocks are covered by at least five analysts working for brokerage firms.

  • 41 of them have the majority “buy” or equivalent ratings.

Here are the 20 stocks that made the screen with at least 20% rise implied by consensus price targets:

Company

 Is. net margin – 2022

 Is. net margin – 2021

 Net margin – 2020

 Net margin – 2019

 Share “buy” reviews

 Closing price – July 9

 The inconvenients. price target

 12-month implied upside potential

Boston Beer Co. Class A SAM,
+ 0.70%

13.35%

12.30%

11.03%

8.80%

53%

$ 973.58

$ 1,352.80

39%

Dorian LPG Ltd. LPG,
+ 2.03%

39.31%

27.80%

25.02%

24.37%

86%

$ 12.80

$ 17.00

33%

IAA inc. AAI,
+ 3.93%

18.31%

17.29%

14.07%

13.45%

90%

$ 54.98

$ 71.50

30%

Take-Two Interactive Software Inc. TTWO,
+1.05%

19.42%

18.42%

14.96%

11.81%

71%

$ 170.37

$ 221.27

30%

Haemonetics Corp. EDT,
+ 0.63%

14.80%

13.82%

12.23%

7.98%

86%

$ 63.48

$ 80.29

26%

Activision Blizzard Inc. ATVI,
+ 0.52%

34.57%

33.36%

27.16%

23.30%

88%

$ 92.38

$ 116.03

26%

SPS Commerce Inc. SPSC,
-2.19%

17.84%

16.68%

14.58%

12.08%

67%

$ 100.77

$ 125.29

24%

FMC Corp. FMC,
+ 1.24%

19.46%

18.51%

12.46%

11.70%

79%

$ 107.66

$ 133.12

24%

First Horizon Corp. FHN,
+ 0.68%

29.93%

29.02%

24.81%

19.39%

87%

$ 16.79

$ 20.54

22%

Applied Materials Inc. AMAT,
+ 1.36%

27.08%

26.52%

21.14%

18.73%

76%

$ 134.90

$ 161.92

20%

Investors Bancorp Inc. VSI,
-0.47%

35.09%

34.27%

21.14%

17.87%

71%

$ 13.70

$ 16.29

19%

Baxter International Inc. BAX,
+ 0.55%

15.27%

14.18%

9.44%

8.81%

56%

$ 80.43

$ 94.25

17%

Cirrus Logic Inc. CRUS,
-1.02%

19.62%

19.07%

14.92%

12.52%

75%

$ 85.79

$ 100.27

17%

Parker-Hannifin Corp. PH,
+ 0.51%

14.48%

13.97%

10.60%

9.63%

77%

$ 311.57

$ 361.00

16%

Netflix Inc. NFLX,
-0.16%

17.35%

16.14%

11.05%

9.26%

76%

$ 535.98

$ 615.69

15%

Sempra Energy SRE,
+ 0.19%

21.63%

21.09%

18.35%

16.98%

60%

$ 132.86

$ 151.13

14%

Any class A PLC,
-1.78%

22.18%

21.42%

17.79%

13.92%

47%

$ 236.31

$ 266.33

13%

Helen of Troy Ltd. HELE,
-1.33%

14.11%

13.62%

11.54%

10.76%

40%

$ 215.25

$ 242.50

13%

Monolithic Power Systems Inc. MPWR,
+ 0.74%

29.35%

28.44%

19.47%

17.33%

79%

$ 382.60

$ 428.00

12%

Analog Devices Inc. ADI,
+ 0.58%

36.18%

35.12%

23.28%

21.60%

83%

$ 166.27

$ 185.80

12%

Source: FactSet

Click on tickers to learn more about each company, including news, business profiles and price ratios. As always, do your own research to make up your own mind about the long-term viability of a business before considering an investment.

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