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