Goldman Sachs Advises Investors to Focus on Long-Term Growth Plays
Goldman Sachs suggests that as the market reaches new heights in anticipation of lower interest rates, investors should consider long-term growth opportunities. The firm has rebalanced its return on equity (ROE) growth basket of stocks, which consists of 50 names with the highest expected ROE growth over the next 12 months. According to David Kostin, Goldman’s chief U.S. equity strategist, the start of Federal Reserve easing reduces the risk of rising borrowing costs. He expects investors to shift away from stocks offering high profitability now and towards those with greater potential for future profitability.
Expectations for ROE Expansion and Equity Returns
Kostin predicts that despite a potential delay and slower pace in interest rate cuts this year, headwinds from taxes and borrowing costs will diminish, leading to higher equity returns. Goldman Sachs projects the broad market index to reach 5,100 by 2024, which is approximately 5.4% higher than Friday’s close.
Stocks with High Expected ROE Growth
The stocks included in Goldman’s ROE growth basket with the greatest expected growth are Newmont (gold mining company), American Tower (wireless infrastructure real estate investment trust), Advanced Micro Devices (chipmaker), and Hasbro (toy manufacturer). These stocks all have an ROE above 35%. Advanced Micro Devices has already shown strong returns this year, up by 14%. Newmont, despite a decline at the beginning of the year, may present a buying opportunity as gold prices pull back. UBS predicts a potential 10% increase in gold prices due to potential rate cuts. American Tower also stands out with its expected ROE growth of 48%.
Other Stocks in Goldman’s ROE Growth Basket
In addition to the aforementioned stocks, Netflix, T-Mobile, and Citigroup are also part of Goldman’s ROE growth basket.
Hot Take: Focus on Long-Term Growth for Optimal Investment Strategy
Goldman Sachs advises investors to prioritize long-term growth plays in anticipation of lower interest rates. By focusing on stocks with high expected ROE growth, investors can position themselves for potential profitability in the future. Despite potential delays in interest rate cuts and ongoing headwinds, Goldman Sachs remains optimistic about equity returns. By considering stocks such as Newmont, American Tower, Advanced Micro Devices, and Hasbro, investors can tap into sectors with strong growth potential.
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