Stock picks to buy: 21 potential future index leaders from Goldman Sachs
- To identify potential future index leaders, Goldman Sachs screened for companies with the highest sales growth and expected sales growth from 2018-2022.
- 21 companies met their “Rule of 10”: having 10% sales growth in 2018 and 2019, as well as expected sales growth of 10% in 2021 and 2022; and having a 10% compound annual growth rate (CAGR) in sales for the period of 2018-2022.
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The term index leader has taken on somewhat of a new meaning in 2020: the companies sitting at the top of indexes like the S&P 500 now make up a monstrous share of them.
To be exact, the top 5 companies in the S&P 500 — Apple, Microsoft, Amazon, Facebook and Alphabet — now make up 23% of the index.
But as history shows, it’s likely that will eventually change.
Though it’s unclear if valuations of the future leaders of the market will remain so extraordinary in the years to come, tomorrow’s index leaders will certainly see sizable future sales growth on its ascent.
All five of the current leaders outpaced the rest of the S&P 500 in sales growth from 2010-2019.
So, who will these leaders be?
Goldman Sachs in a recent note screened for companies with the “potential to be future index leaders.” To do this, they analyzed sales growth of companies in 2018 and 2019 and expected sales growth for 2020, 2021, and 2022.
Only 21 rising companies met their “Rule of 10”: having 10% sales growth in 2018 and 2019, as well as expected sales growth of 10% in 2021 and 2022; and having a 10% compound annual growth rate (CAGR) in sales for the period of 2018-2022.
In other words, they displayed the highest consistency and strength in past and expected future growth.
The 21 stocks are listed below in increasing order of their five-year CAGR.