Stocks with strong balance sheets are gaining popularity as the broader market fluctuates through the ongoing banking 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 a performance analysis released Friday by analyst David Kostin. And it has outperformed 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, a weighted sum of the following five ratios: working capital to assets; retained earnings by assets; operating income by assets; leverage ratio; and asset sales. The score was originally developed to predict the likelihood of a company going bankrupt. The baskets, which span eight sectors, do not contain financials, so their performance has not been materially impacted by the recent industry turmoil. 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 close to 9% and 4% last week, respectively. Investors are betting that the banking crisis could prevent the Federal Reserve from raising interest rates by half a percentage point at its policy meeting this week. Technology and other growth stocks are considered particularly interest rate sensitive and are expected to outperform in periods of lower interest rates. Nvidia, another technology stock in the basket, has also rallied this year along with growing interest in artificial intelligence. The chipmaker is up 76%, marking a return to remarkable annual gains after a 50% decline 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 dropped its first-quarter earnings between $3.78 and $3.82 per share, more than half a dollar above the consensus estimate of $3.23 from 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 approved by the Food and Drug Administration. – CNBC’s Michael Bloom contributed to this report.
Goldman’s strong balance basket is beating the market
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