Stocks with the briskest expected growth in ROE delivered a total return that beat the S&P 500 Index (SPX) by 500 basis points for the year-to-date owing to July 18, 2019, 26% versus 21%, per Goldman Sachs. “Amid concerns about the growth and profitability outlook this year, investors enjoy assigned a premium to companies able to expand ROE,” Goldman says in their current U.S. Weekly Kickstart report. Their basket of ranges with high forecasted ROE growth “typically outperforms in weakening growth environments as investors assign a scarcity thin on the ground b costly to firms that are able to expand ROE despite sector-level headwinds.”
Goldman says these 8 stocks have the highest reckoned ROE growth rates: Cisco Systems Inc. (CSCO), 34%; Apple Inc. (AAPL), 40%; Under Armour Inc. (UAA), 47%; Fidelity Jingoistic Information Services Inc. (FIS), 25%; Sempra Energy (SRE), 32%; Global Payments Inc. (GPN), 31%; Nielsen Holdings PLC (NLSN), 29%; and DXC Technology Co. (DXC), 28%. These are estimated growth rates in ROE, not the current or forecasted ROE figures.
Significance For Investors
The median stock in Goldman’s basket is projected to grow ROE by 9% and has a price to book value (P/B) ratio of 4.4 times book. For the median S&P 500 stock, the respective gets are 2% and 3.3 times book.
Forward ROEs are 17% for the median constituent of the basket and 18% for the median S&P 500 old. For the 8 stocks listed above, the forward ROEs are: Cisco, 47%; Apple, 79%; Under Armour, 11%; Fidelity Civil, 12%; Sempra, 10%; Global Payments, 17%; Nielsen, 27%; and DXC Technology, 13%.
There are 10 information technology stocks centre of the 50 in the basket, and 7 each from financial services and health care. Among the top 11 in terms of YTD total reappear are Global Payments, 62%, Under Armour, 53%, and Cisco, 36%.
Global Payments is riding the worldwide trend toward cashless payments. They control in 30 countries, support 2.5 million merchant locations and process 11 billion transactions worth $550 billion, per their website. Consensus assesses are calling for year-over-year (YOY) revenue growth of 12.6% for 2Q 2019, and 13.2% EPS growth, with a scheduled reporting date of July 30, per Yahoo Resources.
Cisco Systems is a leader in computer networking products. Its expected earnings reporting date is Aug. 14, and the consensus dials for YOY increases of 4.2% in revenues and 17.1% in EPS, per Yahoo Finance. Cisco holds a 47% share of the SD-WAN (software named wide area network) equipment market, and enjoyed robust 55% YOY sales increase in 2018, per research resolute IDC, which projects this market to grow at a compound annual rate (CAGR) of 31% through 2023.
Companies use SD-WAN technology to unite far-flung offices and data centers. It also is used in telecommunications services networks. SD-WAN technology also permits companies to optimize connections to cloud-based services, another rapidly growing market. In a separate development, British telecom convention BT Group is partnering with Cisco to develop an internet peering network, Seeking Alpha reports.
Looking At the
“The path forward for [S&P 500] index ROE is likely to be challenging, although lower interest rates and lower tax rates may fix up with provision support,” Goldman says. On the matter of weakening growth, their U.S. Current Activity Indicator slowed from 1.7% at the start of 2019 to 1.1% in June.
Goldman believes that the S&P 500 is at a OK value relative to interest rates and profitability. However, they warn that “policy uncertainty and negative reinterpretations to 2020 EPS forecasts will limit equity upside.”