The U.S. economy is enjoying fast growth, but headwinds are building in the form of tariffs, trade tensions and other negative forces. Goldman Sachs projects that "real GDP growth will average 2.6% in 2019, decelerating from 2.9% this year," adding that, "in this environment, investors should favor stocks with the fastest sales growth," per their latest U.S. Weekly Kickstart report. Accordingly, Goldman recommends a basket of 50 stocks whose forecasted sales growth rates, based on consensus estimates, are significantly above that of the median stock in the S&P 500 Index (SPX). Among the fastest growers in Goldman's basket are Concho Resources Inc. (CXO), Autodesk Inc. (ADSK), Cabot Oil & Gas Corp. (COG), Align Technology Inc. (ALGN), Facebook Inc. (FB) and Netflix Inc. (NFLX).
Supercharged Sales Growth
|Stock||2019 Sales Growth||Business|
|Concho Resources||35%||Oil & gas production|
|Autodesk||28%||Computer-aided design (CAD)|
|Cabot Oil & Gas||28%||Oil & gas production|
|Align Technology||26%||Teeth straightening devices|
|Median S&P 500 Stock||5%|
Source: Goldman Sachs
While the stocks listed above are particular standouts, the median stock in Goldman's Revenue Growth basket has a projected 2019 sales growth rate of 12%, or 2.4 times the 5% median rate for the S&P 500 as a whole. Align Technology and Autodesk offer interesting cases that are explored in more detail below.
Headwinds to Overcome
The macro environment for these stocks is becoming increasingly difficult to navigate. As noted above, Goldman expects U.S. economic growth to decelerate in 2019, dragging down corporate revenue growth with it, from 7% in 2018 to 5% in 2019 for the median S&P 500 stock, and from 18% to 12% for the median stock in the Revenue Growth basket. Rising inflationary pressures, the impact of interest rate hikes by the Federal Reserve, the rising U.S dollar, and political uncertainty related to the upcoming midterm elections are among the factors weighing on the economy, Goldman indicates.
Goldman's widely varying scenarios illustrate the uncertain outlook. The company has a baseline forecast for the S&P 500 index of 2,850, which is barely above where the index is today. In its bullish scenario, the firm sees the S&P 500 rising 10% from its level on Friday if trade tensions ease and the Fed slows rates hikes. But Goldman sees the S&P 500 falling 17% in its pessimistic scenario, which assumes escalating trade conflicts and a 25% tariff slapped on all imports from China by the U.S. The overall impact of this scenario on the S&P 500 would be "eliminating all expected EPS growth for 2019." Goldman's Washington-based economist assigns a 70% probability to the likelihood that the Trump administration "will move forward with tariffs on the majority of the next round of $200 billion of China imports."
Align Technology offers an advanced alternative to traditional braces for straightening teeth, called Invisalign, that uses virtually invisible made-to-measure "trays" that fit over the teeth. The stock is up by 65% year-to-date (YTD), and is "experiencing strong operating momentum and positive consensus estimate momentum," giving it "long-term upside potential," per Seeking Alpha. Over the last 5 years, the company has grown at 5 times the rate of the dental supplies industry, according to Zacks Equity Research, which notes that sales of the Invisalign system to dentists are advancing at a brisk pace worldwide. Zacks rates Align Technology a "buy." (For more, see also: 12 Stocks That Can Lead in a Rocky Second Half.)
With 36 years of experience, Autodesk is a recognized leader in the CAD/CAM field, computer-aided design and manufacturing. This technology facilitates faster, higher quality and more efficient design and manufacturing processes. Autodesk is transitioning from one-time sales of its software to the increasingly popular annual subscription model in the software industry, which should place revenues on a smoother upward path, The Motley Fool reports, adding that this strategic shift appears to be paying off, with revenues and gross profit margins now both on uptrends. In Autodesk's most recently-reported fiscal quarter, subscription revenues doubled from year-ago levels, and deferred revenues were up to nearly 4 times the reported quarterly sales figure, pointing to the success of the subscription model, per Zacks. (For more, see also: 6 Under The Radar Tech Stars Outpacing The Market.)