What’s Going On Here?Investment bank Goldman Sachs thinks it’s found a way to spot which US stocks will become America’s next big stars – and it starts with getting tens across the board. What Does This Mean?The five biggest US companies account for roughly a quarter of the country’s main stock market index – the biggest proportion in 40 years. Goldman reckons that’s partly thanks to their high revenue growth: US stocks have grown their revenue by an average of 4% a year since 2009, while Facebook, Apple, Amazon, Microsoft, and Alphabet have collectively grown 20%.
So Goldman’s arrived at a conclusion: shares of companies that have increased revenues by at least 10% annually in the last two years and that are expected to grow by at least 10% in the next two will outperform the rest (tweet this). And that, the bank reckons, will give them a shot at joining the big five in the next few years. Why Should I Care?For markets: There’s no “I” in theme.
You’re probably curious about the individual companies Goldman picked out, but you could actually learn a lot more from the themes that link them. The bank pointed out the impact of technology on the healthcare industry, for example, and highlighted firms that are geared toward both advancing medical treatments and the “computerization of health”. Goldman also backed companies that’ll benefit from digital transformations in businesses, workflow automation and optimization (think expense and HR management), and ecommerce and digital payments – a trend that’s been accelerated by the coronavirus pandemic.
For you personally: A method to the madness.
Goldman’s analysis is a prime example of “screening”: the process of filtering investments based on certain criteria in order to shortlist stocks or funds that deserve a closer look. And the good news is anyone can do it – whether you prefer “top-down” screens based on economic or thematic trends, “bottom-up” screens based on companies’ individual characteristics (their “fundamentals”), or even a combination of the two. | 