Goldman picks 50 top return-on-equity stocks for a tough ROE year

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Return on equity for the broader market has been lackluster for the past three quarters and this year will likely see drop in median S&P 500 (SP500) (NYSEARCA:SPY) ROE, according to Goldman Sachs.

"An upwards inflection in S&P 500 ROE will be difficult to achieve in 2023, as headwinds from a higher cost of capital and higher taxes will place further strain on profitability," equity strategist David Kostin wrote in a note.

Goldman is rebalancing its ROE growth basket, which outperformed S&P 500 ROE by 10 percentage points in 2022.

The basket "is sector neutral to the S&P 500 and contains 50 stocks with the highest consensus-expected ROE growth during the next 12 months," Kostin said. "The median stock in the basket is expected to grow ROE in the next 12 months by 12% vs. -6% for the median S&P 500 company."

The stocks in the growth basket by sector are:

• Communication Services (XLC)

1. Take-Two (TTWO), ROE last 12 months 11%, consensus ROE growth 22%, new addition
2. Disney (DIS), 7%, 12%
3. Activision Blizzard (ATVI), 12%, 11%, new add

• Consumer Discretionary (XLY)

1. Target (TGT), 27%, 49%, new add
2. Aptiv (APTV), 11%, 30%
3. Nike (NKE), 29%, 29%
4. Dollar General (DG), 42%, 14%, new add
5. Chipotle (CMG), 39%, 12%

• Consumer Staples (XLP)

1. Keurig Dr Pepper (KDP), 9%, 3%, new add
2. PepsiCo (PEP), 49%, 3%, new add
3. Mondelez (MDLZ), 15%, 3%, new add
4. Conagra (CAG), 14%, 2%, new add

• Energy (XLE)

1. EQT (EQT), 10%, 43%, new add
2. SLB (SLB), 17%, 19%
3. Halliburton (HAL), 24%, 12%

• Financials (XLF)

1. Wells Fargo (WFC), 7%, 48%, new add
2. Bank of New York Mellon (BK), 7%, 40%, new add
3. M&T Bank (MTB), 9%, 39%
4. Progressive (PGR), 15%, 37%
5. AIG (AIG), 8%, 28%
6. Arch Capital (ACGL), 12%, 17%, new add

• Materials (XLB)

1. Corteva (CTVA), 7%, 19%

• Healthcare (XLV)

1. Incyte (INCY), 9%, 39%, new add
2. DexCom (DXCM), 15%, 24%
3. Bio-Techne (TECH), 22%, 19%, new add
4. Becton, Dickinson (BDX), 13%, 5%
5. Edwards Lifesciences (EW), 24%, 4%
6. Baxter International (BAX), 16%, 3%, new add
7. Boston Scientific (BSX), 14%, 3%
8. Universal Health Services (UHS), 12%, 2%

• Industrials (XLI)

1. Verisk Analytics (VRSK), 45%, 15%, new add
2. CoStar Group (CSGP), 7%, 13%, new add
3. Equifax (EFX), 23%, 11%
4. Johnson Controls (JCI), 13%, 10%

• Info Tech (XLK)

1. SolarEdge (SEDG), 12%, 49%
2. Ceridian HCM (CDAY), 5%, 38%, new add
3. Nvidia (NVDA), 38%, 16%
4. Juniper Networks (JNPR), 14%, 9%
5. Salesforce (CRM), 8%, 8%
6. Corning (GLW), 15%, 7%
7. Roper Technologies (ROP), 11%, 6%, new add
8. Global Payments (GPN), 11%, 5%
9. Broadcom (AVGO), 71%, 4%
10. PayPal (PYPL), 22%, 3%, new add
11. Analog Devices (ADI), 14%, 2%
12. DXC Technology (DXC), 17%, 1%, new add
13. AMD (AMD), 10%, 1%, new add

• Real Estate (XLRE)

1. Essex Property Trust (ESS), 6%, 29%, new add

• Utilities (XLU)

1. Constellation Energy (CEG), 8%, 49%
2. PPL (PPL), 7%, 10%, new add

See why UBS expects earnings growth to stall.