August 2, 2021

Twelve Month Payday Loans

The Passionate Pursuit Of Business

20 stocks that could rise as much as 39% as this key metric keeps improving

3 min read

This has been another excellent year for U.S. stocks — so far — as the S&P 500 has returned 17%, following an 18% gain during 2020. Investors know that stocks are anything but cheap, so a good question to ask is what will the market reward for the rest of the year and 2022?

Goldman Sachs analyst David Kostin wrote in the firm’s “U.S. Weekly Kickstart” note to clients July 9 that investors have “started to reward companies with attractive margin profiles.” By this, he means net margin, which is a company’s net income divided by net revenue.

Comparisons of net income margins may be most meaningful within industries, because some by their nature have low margins when measured this way. Kostin wrote: “Our sector-neutral factor of stocks with the highest vs. lowest profit margins has also started to outperform.”

He and a team of Goldman Sachs analysts screened the S&P 500
SPX
for stocks with “above-average net interest margins, realized margin growth of 50+ bp [basis points] in 2020, and expected margin growth of 50+ bp in each of the next two years.”

This led to a group of 32 large-cap stocks in six sectors expected to increase net margins by a median of 201 basis points this year and another 105 basis points in 2022, after defying the odds with profit margin expansion of at least 50 basis points during the pandemic year of 2020. The six sectors were communications services, consumer staples, health care, industrials, information technology and materials.

Stocks that made Goldman’s list include Netflix Inc.
NFLX,
Broadcom Inc.
AVGO
and Philip Morris International Inc.
PM.

Broad screen

To begin with a larger group of stocks and possibly produce a list with the most upside potential, we began with the S&P Composite 1500 Index
XX:SP1500,
which is made up of the S&P 500, the S&P 400 Mid Cap Index
MID
and the S&P Small Cap 600 Index
SML.
We then took an “unfair” approach of screening by net income margin regardless of sector or industry and favoring companies that sailed through 2020.

All the numbers in the screen are for calendar years — not fiscal years, which for many companies don’t match the calendar.

Here’s the screen:

  • Starting with 1,500 companies, the list was narrowed to 747 with net margins above the median of 7.96% in 2019.

  • 226 of these companies improved their net margins by at least 50 basis points during 2020.

  • 124 are expected to improve their net margins by at least 50 basis points in 2021.

  • And 54 of those are expected to improve their net margins by another 50 basis points or more during 2022.

  • 51 of the stocks are covered by at least five analysts working for brokerage firms.

  • 41 of those have majority “buy” or equivalent ratings.

Here are the 20 stocks that made the screen with at least 20% upside implied by consensus price targets:

Company

Est. net margin – 2022

Est. net margin – 2021

Net margin – 2020

Net margin – 2019

Share “buy” ratings

Closing price – July 9

Cons. price target

Implied 12-month upside potential

Boston Beer Co. Class A
SAM
13.35%

12.30%

11.03%

8.80%

53%

$973.58

$1,352.80

39%

Dorian LPG Ltd.
LPG
39.31%

27.80%

25.02%

24.37%

86%

$12.80

$17.00

33%

IAA Inc.
IAA
18.31%

17.29%

14.07%

13.45%

90%

$54.98

$71.50

30%

Take-Two Interactive Software Inc.
TTWO
19.42%

18.42%

14.96%

11.81%

71%

$170.37

$221.27

30%

Haemonetics Corp.
HAE
14.80%

13.82%

12.23%

7.98%

86%

$63.48

$80.29

26%

Activision Blizzard Inc.
ATVI
34.57%

33.36%

27.16%

23.30%

88%

$92.38

$116.03

26%

SPS Commerce Inc.
SPSC
17.84%

16.68%

14.58%

12.08%

67%

$100.77

$125.29

24%

FMC Corp.
FMC
19.46%

18.51%

12.46%

11.70%

79%

$107.66

$133.12

24%

First Horizon Corp.
FHN
29.93%

29.02%

24.81%

19.39%

87%

$16.79

$20.54

22%

Applied Materials Inc.
AMAT
27.08%

26.52%

21.14%

18.73%

76%

$134.90

$161.92

20%

Investors Bancorp Inc.
ISBC
35.09%

34.27%

21.14%

17.87%

71%

$13.70

$16.29

19%

Baxter International Inc.
BAX
15.27%

14.18%

9.44%

8.81%

56%

$80.43

$94.25

17%

Cirrus Logic Inc.
CRUS
19.62%

19.07%

14.92%

12.52%

75%

$85.79

$100.27

17%

Parker-Hannifin Corp.
PH
14.48%

13.97%

10.60%

9.63%

77%

$311.57

$361.00

16%

Netflix Inc.
NFLX
17.35%

16.14%

11.05%

9.26%

76%

$535.98

$615.69

15%

Sempra Energy
SRE
21.63%

21.09%

18.35%

16.98%

60%

$132.86

$151.13

14%

Aon PLC Class A
AON
22.18%

21.42%

17.79%

13.92%

47%

$236.31

$266.33

13%

Helen of Troy Ltd.
HELE
14.11%

13.62%

11.54%

10.76%

40%

$215.25

$242.50

13%

Monolithic Power Systems Inc.
MPWR
29.35%

28.44%

19.47%

17.33%

79%

$382.60

$428.00

12%

Analog Devices Inc.
ADI
36.18%

35.12%

23.28%

21.60%

83%

$166.27

$185.80

12%

Source: FactSet

Click on the tickers for more about each company, including news, business profiles and price ratios. As always, do your own research to form your own opinion about a company’s long-term viability before considering an investment.

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