Goldman’s new portfolio of stable growers is crushing the market, returning 27% this year


Traders and financial professionals work at the opening bell on the floor of the New York Stock Exchange (NYSE) on August 6, 2019.

Drew Angerer | Getty Images

As volatility erupted everywhere amid fears of a recession, Goldman Sachs is advising clients to stick with stocks with stable earnings growth.

The bank added a new basket of “stable growers” to its secret portfolios created exclusively for its clients, and it’s beating the market with a 27% return year to date versus the S&P 500‘s 16%. The 50 stocks in the basket have the lowest volatility of quarterly earnings growth over the past decade.

“Stable growth stocks fare best in environments of slowing economic growth and rising uncertainty,” Ben Snider, an equity strategist at the bank, said in a note Thursday. “The sharp outperformance of stocks with stable earnings growth has widened their valuations relative to volatile growth stocks to the largest premium on record.”

This portfolio would work well if uncertainties around trade and politics remain heightened, the analyst noted. Investors have been grappling with an economic slowdown accelerated by the U.S.-China trade war. The impeachment inquiry into President Donald Trump also added to investors’ list of worries.

The stable growers have returned 22% during the past two years, compared to a 16% return for the S&P 500’s median stock and only 1% for growth stocks which tend to be more volatile, according to Goldman.

“We believe investors should generally bias their portfolios away from stocks with the most volatile growth,” Snider said. “Growth stability has had an impact on long-term stock performance.”

The stocks in the basket spans all 11 sectors, which includes Google’s parent Alphabet, Disney, McDonald’s, Costco Wholesale, FactSet Research Systems and Quest Diagnostics.

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