Goldman sees these efficient profit growers thriving as other stocks get hit by higher costs

Published Mon, Mar 21 20221:17 PM EDT

Corporations could have a hard time growing their earnings this year as a slew of risks threaten corporate profits. However, Goldman Sachs says are still good opportunities in some value stocks for investors looking to navigate these headwinds. The firm shared Monday a basket of stocks expected to show the largest return on equity growth over the next 12 months. Return on equity, or ROE, is a widely used metric to gauge a company's profitability. Last year, S & P 500 companies' ROE hit a record of 22.1%, but boosting those returns this year "will be a daunting task," Goldman chief U.S. equity strategist David Kostin said. Stocks are down broadly this year, with the S & P 500 having lost more than 6%. Goldman cut its S & P 500 target earlier this month for the second time, after first lowering the benchmark's outlook just a month prior . "The 2022 outlook for ROE is challenging for many firms given pervasive margin pressures from higher costs for raw materials, intermediate goods, energy, labor, and financing," Kostin said in the note. As the Federal Reserve tightens monetary policy, rising borrowing costs also pose a challenge to that outlook, he added. However, the firm's value-tilted ROE growth basket contains 50 sector-neutral stocks expected to outperform the next 12 months. The median stock in the basket has a trailing ROE of 14%, expected to rise by between 13% and 16% during the next 12 months. Here are 10 of the stocks in the basket: Energy stocks are expected to have the greatest ROE expansion, Goldman said. Marathon Oil and Pioneer Natural Resources are newcomers to the list, and Goldman highlighted them as having the greatest consensus ROE growth estimates, at 45% and 44%, respectively. Disney , another newcomer to the list, has a consensus ROE growth estimate of 42%. It's currently down about 10% this year, however. The information technology sector has the most representation in the basket, with Micron Technology , Visa and IBM among the names included. Pfizer , Union Pacific , Albemarle and Mondelez International are also in the basket.

The Disney store is seen in Times Square, New York City.

Nick Pfosi | Reuters