Goldman Sachs has put together a list of stocks with strong potential for return on equity this year and low price-to-book ratios.
Return on equity is net income divided by shareholders’ equity. Shareholders’ equity is equal to assets minus debt.
ROE for the S&P 500 reached a record peak of 22.1% last year, boosted by rising EBIT (earnings before interest) margins, Goldman strategists, led by David Kostin, wrote in a commentary.
“The outlook for ROE is more challenging in 2022 due to margin pressures from rising input costs and wage inflation,” they said.
Wall Street analysts forecast that the median member of Goldman’s ROE Growth basket will grow its ROE by 13% this year, compared to flat ROE for the median S&P 500 company.
The Goldman basket median trades at 3.6 times book value, beneath the S&P median of 3.8.
Book value equals a company’s total assets minus intangible assets, such as patents and goodwill, and liabilities.
Goldman’s list includes:
· Disney (DIS), with a price-to-book ratio of 2.9 and a Wall Street analyst consensus forecast of 42% ROE growth this year;
· Nike (NKE), with a price-to-book ratio of 12.1 and a forecast of 15% ROE growth this year;
· Mondelez (MDLZ), with a price-to-book ratio of 3.1 and an ROE growth forecast of 7%;
· Marathon Oil (MRO), with a price-to-book ratio of 1.7 and an ROE growth forecast of 45%;
· Huntington Bancshares (HBAN) of Columbus Ohio, with a price-to-book ratio of 1.4 and an ROE growth forecast of 29%;
· Cooper Cos. (COO), a contact lens maker, with a price-to-book ratio of 3.1 and an ROE growth forecast of 13%;
· Stanley Black & Decker (SWK), with a price-to-book ratio of 2.3 and an ROE growth forecast of 20%;
· Semiconductor titan Broadcom (AVGO), with a price-to-book ratio of 10.3 and an ROE growth forecast of 28%;
· International Business Machines (IBM), with a price-to-book ratio of 5.4 and an ROE growth forecast of 10%;
· Exelon (EXC), a utility, with a price-to-book ratio of 1.3 and an ROE growth forecast of 25%.
