Insider

Goldman Sachs says fiscal stimulus will be the next trigger driving US stocks higher. Here are the 21 names set to get a massive boost from the package.

Summary List PlacementCongressional Democrats are expected to double down on the passing of a $1.9 trillion fiscal stimulus package now that former President Donald Trump's impeachment is behind them. The current proposal would provide some individuals with $1,400 stimulus checks and $400 in federal unemployment benefits, and begin to gradually...

FILE PHOTO: A trader works at the New York Stock Exchange (NYSE) in New York, U.S., December 31, 2019. REUTERS/Bryan R Smith

Summary List Placement

Congressional Democrats are expected to double down on the passing of a $1.9 trillion fiscal stimulus package now that former President Donald Trump’s impeachment is behind them.

The current proposal would provide some individuals with $1,400 stimulus checks and $400 in federal unemployment benefits, and begin to gradually increase the minimum wage to $15 an hour. There is also a range of other provisions including funding for vaccine distribution, virus testing, and state and local government aid.

The passage of the budget resolution on February 5 spurred Goldman Sachs economists to lift their expectations for near-term fiscal stimulus to $1.5 trillion on February 8. They also revised their US real GDP growth expectations to 6.8%, an outlook that is considered bullish and above consensus.

“Fiscal stimulus is the next potential upside catalyst for US equities,” said David Kostin, Goldman’s chief US equity strategist, as he took into consideration the new stimulus and GDP estimate in a February 12 research note.

As Congress moves closer to approving the package, Goldman Sachs clients want to know the impact the package will have on stocks, Kostin said.

Firstly, he expects the package to generate more household demand for US stocks.

“Our Retail Favorites basket continues to rally, rising 21% YTD and 8% in February so far (vs. 4% YTD and 5% MTD for the S&P 500),” Kostin said.

Regulatory action or broker limits could dampen retail investors’ interest in trading, Kostin said. However, the abundance of cash should continue fueling the trading boom.

“In contrast, during 2020 credit card debt declined by more than 10%, checking deposits grew by $4 trillion, and savings grew by $5 trillion,” Kostin said. “On top of these savings, our economists expect more than $1 trillion in additional fiscal support incoming months, including another round of direct checks.” 

The direct check deposits could top up already large savings balances. The backlog of savings could result in a spending frenzy when the economy reopens, driving up inflation and interest rates.

Although Kostin understands investors’ concerns about inflation and rates, he has reason to believe they shouldn’t be too worried.

Goldman Sachs economists are not concerned about the outlook of inflation for a number of reasons. They don’t expect the whole fiscal stimulus package to be passed. They also highlight that some of the most important parts of the package are one-off while other parts will shrink as the economy recovers, which will reduce the risk of sustained overheating.

Meanwhile, Goldman Sachs rates strategists believe the market could be overpricing the probability of rate hikes in the coming years, Kostin said.

However, that’s not to say investors won’t see interest rates and inflation rise in coming months. They likely will, Kostin said. So investors need to think carefully about the impact on US stocks.

The environment of inflation and interest rates rising will create a renewed focus on near-term growth prospects, Kostin said. Inflation pressure could pose a risk to S&P 500 profit margins.

“Better-than-expected margins have been a major reason for the strength of 4Q earnings reports, and our above-consensus earnings estimates have been predicated in part on expectations for a strong margin recovery,” Kostin said. “Historically, inflation has boosted nominal S&P 500 revenues but weighed on profit margins as companies struggled to lift prices at the same pace as rising input costs.”

Based on this outlook, the analysts highlight 21 stocks from the Russell 1000 whose revenues correlate with consumer spending, and whose consensus estimates for sales and earnings in 2021 exceed 2019 levels. These stocks also have price-to-earnings multiples that are not high relative to history.

Insider breaks down the list.

Stock picks’ median values for comparison:

Russell 1000 consensus 2021 sales estimates vs 2019 levels median: 7%

Russell 1000 consensus 2021 EPS estimates vs 2019 levels median: 9%

Russell 1000 five year sales correlation with consumer spending median: 0.4

1. Toll Brothers, Inc

Ticker: TOL

Sector: Household durables

Market capitalization: $7 billion

Year-to-date return: 30%

Consensus 2021 sales estimates vs 2019 levels: 17%

Consensus 2021 EPS estimates vs 2019 levels: 28%

Five year sales correlation with consumer spending: 0.5

Source: Goldman Sachs

2. SLM Corp

Ticker: SLM

Sector: Consumer finance

Market capitalization: $6 billion

Year-to-date return: 21%

Consensus 2021 sales estimates vs 2019 levels: 4%

Consensus 2021 EPS estimates vs 2019 levels: 84%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

3. Raymond James Financial, Inc

Ticker: RJF

Sector: Capital markets

Market capitalization: $16 billion

Year-to-date return: 19%

Consensus 2021 sales estimates vs 2019 levels: 15%

Consensus 2021 EPS estimates vs 2019 levels: 4%

Five-year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

4. Ally Financial

Ticker: ALLY

Sector: Consumer finance

Market capitalization: $15 billion

Year-to-date return: 16%

Consensus 2021 sales estimates vs 2019 levels: 13%

Consensus 2021 EPS estimates vs 2019 levels: 20%

Five year sales correlation with consumer spending: 0.5

Source: Goldman Sachs

5. NVR, Inc

Ticker: NVR

Sector: Household durables

Market capitalization: $17 billion

Year-to-date return: 15%

Consensus 2021 sales estimates vs 2019 levels: 30%

Consensus 2021 EPS estimates vs 2019 levels: 48%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

6. Snap-on Incorporated

Ticker: SNA

Sector: Machinery

Market capitalization: $10 billion

Year-to-date return: 11%

Consensus 2021 sales estimates vs 2019 levels: 3%

Consensus 2021 EPS estimates vs 2019 levels: 1%

Five year sales correlation with consumer spending: 0.8

Source: Goldman Sachs

7. Penske Automotive Group

Ticker: PAG

Sector: Speciality

Market capitalization: $5 billion

Year-to-date return: 11%

Consensus 2021 sales estimates vs 2019 levels: 1%

Consensus 2021 EPS estimates vs 2019 levels: 43%

Five year sales correlation with consumer spending: 0.9

Source: Goldman Sachs

8. Whirlpool corporation

Ticker: WHR

Sector: Household durables

Market capitalization: $12 billion

Year-to-date return: 9%

Consensus 2021 sales estimates vs 2019 levels: 0%

Consensus 2021 EPS estimates vs 2019 levels: 25%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

9. J.B. Hunt Transport Services

Ticker: JBHT

Sector: Road and rail

Market capitalization: $16 billion

Year-to-date return: 8%

Consensus 2021 sales estimates vs 2019 levels: 18%

Consensus 2021 EPS estimates vs 2019 levels: 18%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

10. Primerica

Ticker: PRI

Sector: Insurance

Market capitalization: $6 billion

Year-to-date return: 6%

Consensus 2021 sales estimates vs 2019 levels: 18%

Consensus 2021 EPS estimates vs 2019 levels: 30%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

11. Charles Schwab Corporation

Ticker: SCHW

Sector: Capital markets

Market capitalization: $101 billion

Year-to-date return: 6%

Consensus 2021 sales estimates vs 2019 levels: 57%

Consensus 2021 EPS estimates vs 2019 levels: 6%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

12. Discover Financial Services

Ticker: DFS

Sector: Consumer finance 

Market capitalization: $28 billion

Year-to-date return: 2%

Consensus 2021 sales estimates vs 2019 levels: 1%

Consensus 2021 EPS estimates vs 2019 levels: 2%

Five year sales correlation with consumer spending: 0.8

Source: Goldman Sachs

13. 3M Company

Ticker: MMM

Sector: Industrial conglomerates

Market capitalization: $103 billion

Year-to-date return: 2%

Consensus 2021 sales estimates vs 2019 levels: 7%

Consensus 2021 EPS estimates vs 2019 levels: 7%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

14. Lear corporation

Ticker: LEA

Sector: Auto components

Market capitalization: $10 billion

Year-to-date return: 1%

Consensus 2021 sales estimates vs 2019 levels: 4%

Consensus 2021 EPS estimates vs 2019 levels: 0%

Five year sales correlation with consumer spending: 0.8

Source: Goldman Sachs

15. Facebook, Inc, Class A

Ticker: FB

Sector: Interactive media & services

Market capitalization: $770 billion

Year-to-date return: -1%

Consensus 2021 sales estimates vs 2019 levels: 53%

Consensus 2021 EPS estimates vs 2019 levels: 76%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

16. Stanley Black & Decker, Inc

Ticker: SWK

Sector: Machinery

Market capitalization: $28 billion

Year-to-date return: -2%

Consensus 2021 sales estimates vs 2019 levels: 8%

Consensus 2021 EPS estimates vs 2019 levels: 21%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

17. Fleetcor Technologies

Ticker: FLT

Sector: IT Services

Market capitalization: $22 billion

Year-to-date return: -3%

Consensus 2021 sales estimates vs 2019 levels: 0%

Consensus 2021 EPS estimates vs 2019 levels: 5%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

18. Timken Company

Ticker: TKR

Sector: Machinery

Market capitalization: $6 billion

Year-to-date return: -4%

Consensus 2021 sales estimates vs 2019 levels: 3%

Consensus 2021 EPS estimates vs 2019 levels: 9%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

19. RPM International

Ticker: RPM

Sector: Chemicals

Market capitalization: $11 billion

Year-to-date return: -4%

Consensus 2021 sales estimates vs 2019 levels: 7%

Consensus 2021 EPS estimates vs 2019 levels: 41%

Five year sales correlation with consumer spending: 0.6

Source: Goldman Sachs

20. PPG Industries

Ticker: PPG

Sector: Chemicals

Market capitalization: $33 billion

Year-to-date return: -4%

Consensus 2021 sales estimates vs 2019 levels: 6%

Consensus 2021 EPS estimates vs 2019 levels: 21%

Five year sales correlation with consumer spending: 0.8

Source: Goldman Sachs

21. Universal Health Services, Inc Class B

Ticker: UHS

Sector: Health care providers and services

Market capitalization: $11 billion

Year-to-date return: -5%

Consensus 2021 sales estimates vs 2019 levels: 4%

Consensus 2021 EPS estimates vs 2019 levels: 7%

Five year sales correlation with consumer spending: 0.7

Source: Goldman Sachs

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