GOLDMAN SACHS: Buy these 25 stocks best-positioned to juice profits in 2021 as stimulus and vaccine progress spur economic growth

S&P 500 operating leverage is the highest it’s been in a decade. That’s one reason Goldman expects a strong recovery in earnings.

One of the most important questions for investors in 2021 is how to bet on the ongoing economy recovery – even if its course looks uncertain right now. Goldman Sachs is giving its answer.

Chief US Equity Strategist David Kostin says he expects success for companies with high operating leverage, or the companies that will experience proportionately greater growth in their profits as their revenues increase. That means they should benefit the most as economic activity increases.

“Our high Operating Leverage basket has outperformed the S&P 500 by 9 pp (+18% vs. +9%) since November 9th when Pfizer-BioNTech released the surprisingly efficacious phase 3 vaccine results,” he wrote in a note to clients. “Stocks with high operating leverage will likely continue to outperform as corporate revenues recover.”

Kostin writes that overall, S&P 500 operating leverage is the highest it’s been in a decade. That’s one reason he expects a stronger recovery in earnings than most Wall Street experts do.

“Even absent any cost controls, an economic and revenue recovery – benefitting from increased fiscal stimulus and widespread vaccinations – should lead to an even stronger earnings rebound,” he said. “Our 2021 S&P 500 EPS forecast of $178 stands well-above consensus of $167.”

Kostin and his team assessed S&P 500 stocks based on their operating leverage, as measured by their comparatively low costs of goods sold; depreciation expenses; and selling, general and administrative expenses. Those low expenses mean larger profits for them as revenues ramp up.

Kostin’s high-leverage group exclude financial and utility companies because of their different financial metrics and business models. He says the median degree of operating leverage for S&P 500 companies is 2.7, while the median degree for the top 50 companies listed by Kostin is 5.9.

The companies listed below all meet or exceed the median the group Kostin writes about. They’re ranked from lowest to highest based on their degree of operating leverage.

25. Ingersoll Rand Ingersoll Rand



Ticker: IR

Sector: Industrials

Market cap: $19.2 billion

2021 estimated sales growth: 8%

Degree of operating leverage: 5.9

Source: Goldman Sachs

24. Gartner Gartner



Ticker: IT

Sector: Information technology

Market cap: $14.7 billion

2021 estimated sales growth: 9%

Degree of operating leverage: 6.0

Source: Goldman Sachs

23. Juniper Networks Juniper Networks



Ticker: JNPR

Sector: Information technology

Market cap: $7.7 billion

2021 estimated sales growth: 3%

Degree of operating leverage: 6.1

Source: Goldman Sachs

22. Fiserv Fiserv



Ticker: FISV

Sector: Information technology

Market cap: $73.9 billion

2021 estimated sales growth: 8%

Degree of operating leverage: 6.1

Source: Goldman Sachs

21. Dentsply Sirona Dentsply Sirona



Ticker: XRAY

Sector: Healthcare

Market cap: $13 billion

2021 estimated sales growth: 17%

Degree of operating leverage: 6.2

Source: Goldman Sachs

20. Mosaic Mosaic



Ticker: MOS

Sector: Materials

Market cap: $10.6 billion

2021 estimated sales growth: 7%

Degree of operating leverage: 6.2

Source: Goldman Sachs

19. Hewlett Packard Enterprise Hewlett Packard Enterprise



Ticker: HPE

Sector: Information technology

Market cap: $15.7 billion

2021 estimated sales growth: 1%

Degree of operating leverage: 6.5

Source: Goldman Sachs

18. VF VF Corp



Ticker: VFC

Sector: Consumer discretionary

Market cap: $33.4 billion

2021 estimated sales growth: 13%

Degree of operating leverage: 6.9

Source: Goldman Sachs

17. Walgreens Boots Alliance Walgreens Boots



Ticker: WBA

Sector: Consumer staples

Market cap: $42.4 billion

2021 estimated sales growth: 2%

Degree of operating leverage: 7.2

Source: Goldman Sachs

16. Ulta Beaty Ulta Beauty



Ticker: ULTA

Sector: Consumer discretionary

Market cap: $16.6 billion

2021 estimated sales growth: 18%

Degree of operating leverage: 7.3

Source: Goldman Sachs

15. Western Digital Western Digital



Ticker: WDC

Sector: Information technology

Market cap: $15.0 billion

2021 estimated sales growth: 5%

Degree of operating leverage: 7.7

Source: Goldman Sachs

14. Kroger Kroger



Ticker: KR

Sector: Consumer staples

Market cap: $24.3 billion

2021 estimated sales growth: -2%

Degree of operating leverage: 7.8

Source: Goldman Sachs

13. Sysco Sysco



Ticker: SYY

Sector: Consumer staples

Market cap: $38.8 billion

2021 estimated sales growth: 6%

Degree of operating leverage: 7.9

Source: Goldman Sachs

12. Corteva Corteva



Ticker: CTVA

Sector: Materials

Market cap: $32.9 billion

2021 estimated sales growth: 4%

Degree of operating leverage: 7.9

Source: Goldman Sachs

11. Amazon.com Amazon



Ticker: AMZN

Sector: Consumer discretionary

Market cap: $1.59 trillion

2021 estimated sales growth: 18%

Degree of operating leverage: 8.0

Source: Goldman Sachs

10. News Corp. News Corp



Ticker: NWSA

Sector: Communication services

Market cap: $10.8 billion

2021 estimated sales growth: -2%

Degree of operating leverage: 10.0

Source: Goldman Sachs

9. Tapestry Tapestry



Ticker: TPR

Sector: Consumer discretionary

Market cap: $9.4 billion

2021 estimated sales growth: 6%

Degree of operating leverage: 10.3

Source: Goldman Sachs

8. DXC Technology DXC Technology



Ticker: DXC

Sector: Information technology

Market cap: $7.2 billion

2021 estimated sales growth: -6%

Degree of operating leverage: 12.9

Source: Goldman Sachs

7. ServiceNow ServiceNow



Ticker: NOW

Sector: Information technology

Market cap: $101.7 billion

2021 estimated sales growth: 25%

Degree of operating leverage: 15.9

Source: Goldman Sachs

6. Ralph Lauren Ralph Lauren



Ticker: RL

Sector: Consumer discretionary

Market cap: $8.3 billion

2021 estimated sales growth: 10%

Degree of operating leverage: 16.6

Source: Goldman Sachs

5. Ford Ford



Ticker: F

Sector: Consumer discretionary

Market cap: $38.9 billion

2021 estimated sales growth: 23%

Degree of operating leverage: 17.2

Source: Goldman Sachs

4. Twitter Twitter



Ticker: TWTR

Sector: Communication services

Market cap: $37.5 billion

2021 estimated sales growth: 22%

Degree of operating leverage: 34.4

Source: Goldman Sachs

3. Salesforce.com Salesforce



Ticker: CRM

Sector: Information technology

Market cap: $199.5 billion

2021 estimated sales growth: 20%

Degree of operating leverage: 76.4

Source: Goldman Sachs

2. HollyFrontier HollyFrontier



Ticker: HFC

Sector: Energy

Market cap:

2021 estimated sales growth: 3%

Degree of operating leverage: 154.4

Source: Goldman Sachs

1. PVH PVH



Ticker: PVH

Sector: Consumer discretionary

Market cap: $7.5 billion

2021 estimated sales growth: 19%

Degree of operating leverage: 183.3

Source: Goldman Sachs

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