CNBC Pro

Goldman: 8 cheap stocks with big upside

Andrew Burton | Getty Images

valuations have declined alongside a drop in profitability in the past 12 months, setting up a potential trade around certain areas of the market, strategists at Goldman Sachs indicated Monday.

In the past year, price-to-book (P/B) metrics for the S&P benchmark fell as profitability ratios, measured by return on equity (ROE), also declined.

"The historical relationship between ROE and the P/B ratio shows investors typically penalize declining profitability with lower valuation," Goldman's chief U.S. equity strategist, David Kostin, wrote in a note to clients.

The S&P 500 currently trades slightly above the 2014 year-end level of 2,059, but the P/B ratio is 4 percent lower at 2.7 times compared with 2.8 times, Kostin noted.

But Goldman told clients to pick up some of these stocks with depressed valuations.

More In Investing

The top stock performers this week make recession-proof stuff like cereal and soup
CNBC ProThe top stock performers this week make recession-proof stuff like cereal and soup
Bond market plunge means the low for stocks is not in yet, Bank of America's Hartnett says
CNBC ProBond market plunge means the low for stocks is not in yet, Bank of America's Hartnett says