Paycom, Chipotle highlight Goldman's Rule of 10 stock screens

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Goldman Sachs says its Rule of 10 is a valuable tool for portfolio managers seeking stocks with strong long-term growth.

The traditional model screens S&P 500 (SP500) (SPY) (IVV) (VOO) stocks with a minimum of 10% sales growth over the past two years, expected to continue for the next three years.

The sales strategy has outperformed and been less sensitive to interest rate movements since 2022. Currently 20 stocks meet the criteria, exceeding the historical average.

But investors now prioritize earnings growth over sales growth.

An alternative Rule of 10 screen based on net income growth identifies 18 stocks. These stocks with consistent earnings growth trade at below-average premiums to the S&P 500.

Eight stocks appear in both screens: ServiceNow (NYSE:NOW), Paycom (NYSE:PAYC), Fortinet (NASDAQ:FTNT), Insulet (NASDAQ:PODD), Chipotle (NYSE:CMG), Intuit (NASDAQ:INTU), Cadence Design (NASDAQ:CDNS) and Aptiv (NYSE:APTV). They have a median return of 29% year to date, surpassing the median stocks in the sales and net income screens.

Notably, the median overlap stock trades at a favorable EV/Sales multiple of 10x.

Here are the stocks meeting the "Rule of 10" criteria for sales growth and net income growth, along with their expected compound annual growth rate from 2022 to 2025 based on consensus estimates:

Rule of 10 sales growth:

• Enphase Energy (NASDAQ:ENPH), 27% CAGR
• Tesla (NASDAQ:TSLA), 26%
• SolarEdge (NASDAQ:SEDG), 24%
• Palo Alto Networks (NASDAQ:PANW), 22%
• ServiceNow (NOW), 22%
• Paycom Software (PAYC), 21%
• Fortinet (FTNT), 21%
• DexCom (NASDAQ:DXCM), 20%
• Insulet (PODD), 19%
• Axon Enterprise (NASDAQ:AXON), 19%
• Arista Networks (NYSE:ANET), 16%
• Ceridian (NYSE:CDAY), 16%
• Chipotle (CMG), 14%
• Intuit (INTU), 13%
• Adobe (NASDAQ:ADBE), 12%
• Cadence Design Systems (CDNS), 12%
• Monster Beverage (NASDAQ:MNST), 12%
• Starbucks (NASDAQ:SBUX), 11%
• Aptiv (APTV), 11%
• Salesforce (NYSE:CRM), 11%

Rule of 10 net income growth:

• Baker Hughes (NASDAQ:BKR), 42% CAGR
• Match Group (NASDAQ:MTCH), 35%
• Insulet (PODD), 33%
• Aptiv (APTV), 30%
• Booking Holdings (NASDAQ:BKNG), 28%
• ServiceNow (NOW), 26%
• Schlumberger (NYSE:SLB), 26%
• Chipotle (CMG), 24%
• Paycom Software (PAYC), 23%
• Halliburton (NYSE:HAL), 22%
• Fortinet (FTNT), 20%
• Howmet Aerospace (NYSE:HWM), 18%
• Cadence Design Systems (CDNS), 15%
• Xylem (NYSE:XYL), 15%
• Intuit (INTU), 15%
• Autodesk (NASDAQ:ADSK), 13%
• UnitedHealth Group (NYSE:UNH), 12%
• Molina Healthcare (NYSE:MOH), 12%

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