A simple stock-picking strategy based on buying companies that invest the most for growth will outperform the market, according to one top Wall Street firm
Goldman Sachs recommended that investors buy stocks of companies that have high levels of spending on capital expenditures, R&D and acquisitions.
"Investors have rewarded companies investing the most for future growth, hoping that such investments will pay off in the current modest GDP growth environment. We expect this trend will persist," Goldman strategist Cole Hunter wrote in a note to clients Thursday. The note was entitled "Firms investing for growth will continue to outperform."
Goldman predicts S&P 500 companies will increase spending by 6 percent, to $2.3 trillion, in 2018. The bank estimates 57 percent, or $1.3 trillion, of the spending will be allocated for growth investments such as capital expenditures, research and development, and acquisitions, while 43 percent, or $1 trillion, will be used for dividends and stock buybacks.
Hunter noted the "Goldman Sachs Capex and R&D" basket of companies that spent the most on growth investments outperformed the S&P 500 by 4.4 percentage points since the start of 2016.
Here is a selection of seven stocks in the firm's recommended basket.
-- CNBC's Jason Gewirtz contributed to this report.