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Goldman expects profit margins to jump next year and these stocks to benefit most

A pedestrian wearing a face mask looks at a smartphone while passing in front of the New York Stock Exchange (NYSE) in New York, on Monday, July 20, 2020.
Michael Nagle | Bloomberg | Getty Images

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A continued economic recovery in the fourth quarter and into 2021 should lead to a snapback in a key financial metric, Goldman Sachs said in a note to clients.

The firm said in a note that 10 out of 11 S&P 500 sectors saw return on equity decline this year, but the numbers should bounce back once revenues return. Goldman released a list of stocks that are best positioned for significant growth in the metric, which is a measure of earnings growth, in the next 12 months.

"We expect S&P 500 net margins will sharply rebound by 181 bp to 10.9% in 2021, slightly below 2019 levels. This forecast primarily reflects our economists' expectation of strong US and world GDP growth in the coming year, driven in part by vaccine approval and distribution," the note said.

Goldman noted that cost-cutting during the pandemic and automation will help boost the margin recovery.

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