Goldman Sachs: Stick with growth stocks like Netflix, Amazon and Micron

Key Points
  • Goldman Sachs chief U.S. equity strategist tells investors to stay in growth stocks, arguing healthy economic activity should keep the rally alive.
  • "Growth outperformance has not historically signaled subsequent value outperformance," Goldman's David Kostin wrote.
  • The bank's top picks growth picks include Micron, Netflix and Amazon.
Miguel Riopa | AFP | Getty Images

The "extraordinary" performance of growth stocks over the past year doesn't mean those names are slowing down anytime soon, according to Goldman Sachs.

David Kostin, Goldman's chief U.S. equity strategist, told clients to stick with names in health care and consumer discretionary and resist jumping into value stocks. Top picks included Micron, Netflix and Amazon.

"Steady economic activity and a gradually tightening Fed create an environment conducive to further growth stock outperformance," Kostin wrote Friday. "Long term, we believe value represents an attractive factor tilt and investment strategy, but we expect growth will provide superior short- and medium-term returns."

Goldman highlighted a number of growth stocks across its coverage with the fastest growth in their sectors based on earnings and sales.

Information technology has easily outperformed its rival sectors, up nearly 33 percent over the past 12 months versus gains of 19.7 percent for consumer discretionary and 17.8 percent for financials. Still, many investors have grown concerned that tech's ascent could give way to a rally in value names as the historic bull market celebrates its ninth birthday.

Citing projections for continued economic growth, Kostin warned against this view. The strategist contended that 2.6 percent gross domestic product growth in 2018 and 2.2 percent GDP expansion in 2019 should egg growth stocks higher.

"In environments of healthy but modest economic growth, investors typically allocate a scarcity premium to firms able to generate superior growth," Kostin added. "Contrary to popular intuition, growth outperformance has not historically signaled subsequent value outperformance. In fact, more often than not growth stock outperformance leads to more growth stock outperformance."