Goldman's strong balance sheet basket is beating the market amid banking crisis. Here's what's in it

Published Mon, Mar 20 20231:02 PM EDTUpdated Mon, Mar 20 20231:41 PM EDT

Stocks with strong balance sheets are gaining favor as the broader market whipsaws amid the ongoing bank crisis. Goldman Sachs' basket of 50 S & P 500 companies with strong balance sheets has outperformed its weak balance sheet basket by six percentage points since March 8, the day Silicon Valley Bank's downward spiral began , according to an analysis of performance released Friday by analyst David Kostin. And it has outperformed by 11 percentage points since the start of the year, the same analysis showed. The outperformance of stocks with stronger balance sheets has marked a "sharp rotation," Kostin said. To determine which S & P 500 stocks have the strongest balance sheets, Goldman Sachs uses the Altman Z-score, which is a weighted sum of the following five ratios: working capital to assets; retained earnings to assets; operating income to assets; leverage ratio; and sales to assets. The score was originally developed to forecast the likelihood of a company going bankrupt. The baskets, which span eight sectors, do not include any financials, so their performance has not substantially been affected by recent turmoil in the sector. Here are 10 stocks in the outperforming group with strong balance sheets: Meta and Tesla are two growth names in the basket that have rallied in recent days — finishing last week up nearly 9% and 4%, respectively. Investors have been betting the banking crisis could prevent the Federal Reserve from hiking interest rates by a half percentage point at its policy meeting this week. Technology and other growth stocks are considered particularly interest rate sensitive and are expected to do better during periods with lower interest rates. Nvidia , another technology stock in the basket, has also rallied this year in tandem with growing interest in artificial intelligence. The chipmaker has surged 76%, marking a return to noteworthy annual gains after a 50% drop in 2022. By comparison, the stock more than doubled its share value in 2020 and 2021. NVDA META,TSLA 5Y mountain Nvidia, Meta and Tesla Outside of technology, metal producer Steel Dynamics was a recent addition to the basket with a score of 6.7. Last week, the company guided its first-quarter earnings to come in between $3.78 and $3.82 per share, more than half a dollar above the $3.23 consensus estimate of analysts polled by FactSet. Vertex Pharmaceuticals also made the list. The company reported earlier this month that its cell therapy treatment for Type 1 diabetes had been cleared by the Food and Drug Administration. — CNBC's Michael Bloom contributed to this report.