In an effort to identify the future mega-cap giants, Goldman Sachs analyzed the financial similarities behind today's winners and used that information to develop a screen that can help investors scout out the future growth engines of the stock market.
In a recent note, Goldman highlighted its "Rule of 10" in a bid to screen for secular growth stocks in the S&P 500 that can grow in all stages of an economic cycle. The screen focuses on revenue growth above 10%.
"We screen for S&P 500 stocks that grew sales by at least 10% during each of the previous two years and are expected to grow sales by at least 10% in the current year and each of the next two years," Goldman Sachs' David Kostin said.
There are currently 20 S&P 500 stocks that meet this criteria, and they're in good company.
Advertisement
"The seven mega-cap tech stocks grew sales at a 15% CAGR from 2013 to 2019, compared with 4% growth for the S&P 500. Excepting 2022, these stocks grew sales at a faster rate than the broader index in each year since 2019," Goldman Sachs' David Kostin said.
And the mega-cap tech stocks are still in great shape, according to Kostin, with Wall Street estimating that they will grow revenues at an annual rate of 11% through 2025, compared to just 4% growth for the S&P 500.
While stocks that met this criteria have outperformed the S&P 500 considerably over the past decade, so to have stocks that experienced consistent profit growth of at least 10%. This screen is especially poignant after 2022, as investors shifted their focus from "growth at all costs" to sustainable growth in profits.
Goldman identified 18 S&P 500 companies that meet this criteria, and only eight stocks that meet the criteria of both 10% revenue growth and 10% income growth.
These are the eight S&P 500 companies that meet Goldman Sachs' "Rule of 10" screening criteria for both revenue and profits.
NewsletterSIMPLY PUT - where we join the dots to inform and inspire you. Sign up for a weekly brief collating many news items into one untangled thought delivered straight to your mailbox.