GOLDMAN SACHS: Buy these 24 high-growth stocks that are investing in cash cows for the future at the highest rates in the S&P 500

  • It’s a tricky time to be in growth stocks right now, with many valuations in the space overextended.
  • To identify some opportunities, Goldman Sachs looked at firms investing the most for the future.
  • The stocks are expected to generate higher cash returns on cash investment than the S&P 500 in 2021.
  • See more stories on Insider’s business page.

Investing in growth stocks can be a difficult game at the moment.

Many have unthinkably high valuations thanks to things like low interest rates and heightened speculation, raising questions about how long their outperformance can last going forward. On the other hand, investing solely based on valuation isn’t always necessarily the best approach either.

Another way to identify companies that could do well in the future is by looking at how much they’re investing in themselves and planting the seeds of future growth. In a recent note, a team of analysts at Goldman Sachs did just that, and came up with a list of firms outperforming the S&P 500 average in terms of investment for the future. 

To do so, they looked at how much a firm is investing in the future as a percentage of their operating cash flow while also factoring in asset depreciation.

“High capex spending by itself can be a flawed measure of investment for future growth since many firms operate in asset-heavy industries and may barely invest at a rate faster than assets are depreciating,” Goldman’s Chief US Equity Strategist David Kostin said in the Monday note.

The list of firms spans several sectors and over the last three years has a growth investment rate of 78% on Goldman’s scale compared to 11% for the rest of the S&P 500. The companies are also expected to generate higher cash returns on cash investment compared to the rest of the index this year, the bank said. 

The average forward price-to-earnings ratio, a valuation measure, is 26x. This is higher than the S&P 500’s average at 23x, but lower than many other growth names.

Below we’ve compiled the 24 stocks on the list that are above the median growth investment rate of 78%, ordered from the highest rate to lowest. Listed as well is the expected rate of cash return on cash investment (CROCI) for 2021, if applicable.

Ticker: INCY

3-year growth investment ratio: 515%

2021 CROCI: 30% 

Source: Goldman Sachs

2. Carnival

Ticker: CCL

3-year growth investment ratio: 346%

2021 CROCI: N/A

Source: Goldman Sachs

3. Advanced Micro Devices

Ticker: AMD

3-year growth investment ratio: 299%

2021 CROCI: 47%

Source: Goldman Sachs

4. Edison International

Ticker: EIX

3-year growth investment ratio: 220%

2021 CROCI: 7%

Source: Goldman Sachs

5. Alliant Energy

Ticker: LNT

3-year growth investment ratio: 174%

2021 CROCI: N/A

Source: Goldman Sachs

6. Norwegian Cruise Lines

Ticker: NCLH

3-year growth investment ratio: 164%

2021 CROCI: 7%

Source: Goldman Sachs

7. DexCom

Ticker: DXCM

3-year growth investment ratio: 156%

2021 CROCI: N/A

Source: Goldman Sachs

8. Synopsys

Ticker: SNPS

3-year growth investment ratio: 134%

2021 CROCI: N/A

Source: Goldman Sachs

9. Juniper Networks

Ticker: JNPR

3-year growth investment ratio: 132%

2021 CROCI: 10%

Source: Goldman Sachs

10. Cadence Design Systems

Ticker: CDNS

3-year growth investment ratio: 120%

2021 CROCI: N/A

Source: Goldman Sachs

11. Regeneron Pharmaceuticals

Ticker: REGN

3-year growth investment ratio: 113%

2021 CROCI: 79%

Source: Goldman Sachs

12. Eli Lilly

Ticker: LLY

3-year growth investment ratio: 113%

2021 CROCI: 21%

Source: Goldman Sachs

13. ONEOK

Ticker: OKE

3-year growth investment ratio: 111%

2021 CROCI: 9% 

Source: Goldman Sachs

14. General Motors

Ticker: GM

3-year growth investment ratio: 108%

2021 CROCI: 9%

Source: Goldman Sachs

15. Wynn Resorts

Ticker: WYNN

3-year growth investment ratio: 106%

2021 CROCI: 5%

Source: Goldman Sachs

16. Albemarle

Ticker: ALB

3-year growth investment ratio: 94%

2021 CROCI: 5%

Source: Goldman Sachs

17. Merck

Ticker: MRK

3-year growth investment ratio: 93%

2021 CROCI: 16%

Source: Goldman Sachs

18. Diamondback Energy

Ticker: FANG

3-year growth investment ratio: 91%

2021 CROCI: 9%

Source: Goldman Sachs

19. Gilead Science

Ticker: GILD

3-year growth investment ratio: 90%

2021 CROCI: 22%

Source: Goldman Sachs

20. Edwards Lifesciences

Ticker: EW

3-year growth investment ratio: 88%

2021 CROCI: 31%

Source: Goldman Sachs

21. Amazon

Ticker: AMZN

3-year growth investment ratio: 85%

2021 CROCI: NM

Source: Goldman Sachs

22. Electronic Arts

Ticker: EA

3-year growth investment ratio: 82%

2021 CROCI: 32%

Source: Goldman Sachs

23. Western Digital

Ticker: WDC

3-year growth investment ratio: 82%

2021 CROCI: 9%

Source: Goldman Sachs

24. Qualcomm

Ticker: QCOM

3-year growth investment ratio: 81%

2021 CROCI: 41%

Source: Goldman Sachs

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