A slowing economy and soaring volatility are tamping down expectations for corporate growth in 2019. Based on consensus estimates reported by Goldman Sachs, the S&P 500 Index (SPX) now is expected to post 6% sales growth and 7% EPS growth in 2019. However, a short list of stocks expected to deliver superior growth of 10% or higher in both sales and earnings in 2019: Adobe Inc. (ADBE), Alphabet Inc. (GOOGL), PayPal Holdings Inc. (PYPL), Broadcom Inc. (AVGO), Mastercard Inc. (MA), Microsoft Corp. (MSFT), and Intuitive Surgical Inc. (ISRG) (See table below). While earnings and sales growth are only two factors in determining whether a stock outperforms, they are key drivers.
7 Stocks Offering Fast Growth In 2019
- Adobe, +25% sales, +16% EPS
- Alphabet, +19% sales, +11% EPS
- PayPal, +17% sales, +20% EPS
- Intuitive Surgical, +15% sales, +15% EPS
- Broadcom, +15% sales, +11% EPS
- Mastercard, +13% sales, +17% EPS
- Microsoft, +12% sales, +14% EPS
Source: Goldman Sachs
Significance For Investors
In developing their list, Goldman only looked at the 100 largest stocks by market cap in the S&P 500. The projected growth rates for 2019 reflect consensus estimates as compiled by FactSet Research Systems. Overall, Goldman found that 22 of the 100 stocks are projected to post sales increases of at least 10% in 2019, while 48 are expected to deliver EPS growth of 10% or more, per Goldman's latest U.S. Quarterly Chartbook.
In another recent report, Goldman advises investors to seek out stocks that offer a "margin of safety," given the slowing economy and rising risks. In that analysis, Goldman cut consensus earnings forecasts by 10%, to create a conservative scenario. For the seven stocks listed above, a 10% cut to sales or earnings still would produce positive growth.
Google parent Alphabet is one company offering both superior growth and strong defensive characteristics, according to Maria Ripps, an analyst with Canaccord Genuity, per Barron's. Canaccord has an even more optimistic view than the consensus, projecting a compound annual growth rate (CAGR) of 15% for EPS through 2022, bolstered by share repurchases and widening profit margins. In particular, Ripps writes, Google is winning a bigger share of worldwide online advertising, which itself is a growing market.
Another of Goldman's ongoing investment themes, in the face of rising interest rates, has been to recommend stocks with strong balance sheets. Mastercard and Intuitive Surgical are among those that also score high on this measure as well as profit and sales growth. Mastercard has been enjoying faster growth than its larger rival in the payments processing field, Visa Inc. (V), partly because more rapidly-expanding markets outside the U.S. represent a greater proportion of its business. Also, Mastercard is riding a secular shift away from the use and cash and checks for payments. For its part, Intuitive Surgical, a leader in robotic, minimally-invasive surgery, also is in a rapidly expanding sector.
Looking Ahead
Given the challenging economic environment, it is possible that any or all of these stocks may deliver serious sales or earnings disappointments in 2019, and that the market will punish them. A high-profile lesson is the 9% hit that shares of iPhone maker Apple Inc. (AAPL) took when the company issued its first sales warning in years, sharply lowering its revenue guidance for the last calendar quarter of 2018.
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