Philip van Doorn

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July 13, 2021, 7:28 a.m. EDT

20 stocks that could rise as much as 39% as this key metric keeps improving

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By Philip van Doorn

This has been another excellent year for U.S. stocks — so far — as the S&P 500 has returned 17%, following an 18% gain during 2020. Investors know that stocks are anything but cheap, so a good question to ask is what will the market reward for the rest of the year and 2022?

Goldman Sachs analyst David Kostin wrote in the firm’s “U.S. Weekly Kickstart” note to clients July 9 that investors have “started to reward companies with attractive margin profiles.” By this, he means net margin, which is a company’s net income divided by net revenue.

Comparisons of net income margins may be most meaningful within industries, because some by their nature have low margins when measured this way. Kostin wrote: “Our sector-neutral factor of stocks with the highest vs. lowest profit margins has also started to outperform.”

He and a team of Goldman Sachs analysts screened the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.10% for stocks with “above-average net interest margins, realized margin growth of 50+ bp [basis points] in 2020, and expected margin growth of 50+ bp in each of the next two years.”

This led to a group of 32 large-cap stocks in six sectors expected to increase net margins by a median of 201 basis points this year and another 105 basis points in 2022, after defying the odds with profit margin expansion of at least 50 basis points during the pandemic year of 2020. The six sectors were communications services, consumer staples, health care, industrials, information technology and materials.

Stocks that made Goldman’s list include Netflix Inc. /zigman2/quotes/202353025/composite NFLX -0.36% , Broadcom Inc. /zigman2/quotes/200646538/composite AVGO -0.32% and Philip Morris International Inc. /zigman2/quotes/201611010/composite PM -0.30% .

Broad screen

To begin with a larger group of stocks and possibly produce a list with the most upside potential, we began with the S&P Composite 1500 Index /zigman2/quotes/210600453/delayed XX:SP1500 -0.02% , which is made up of the S&P 500, the S&P 400 Mid Cap Index /zigman2/quotes/219506813/composite MID +1.44% and the S&P Small Cap 600 Index /zigman2/quotes/210599868/delayed SML +0.03% . We then took an “unfair” approach of screening by net income margin regardless of sector or industry and favoring companies that sailed through 2020.

All the numbers in the screen are for calendar years — not fiscal years, which for many companies don’t match the calendar.

Here’s the screen:

  • Starting with 1,500 companies, the list was narrowed to 747 with net margins above the median of 7.96% in 2019.

  • 226 of these companies improved their net margins by at least 50 basis points during 2020.

  • 124 are expected to improve their net margins by at least 50 basis points in 2021.

  • And 54 of those are expected to improve their net margins by another 50 basis points or more during 2022.

  • 51 of the stocks are covered by at least five analysts working for brokerage firms.

  • 41 of those have majority “buy” or equivalent ratings.

Here are the 20 stocks that made the screen with at least 20% upside implied by consensus price targets:

Company Est. net margin – 2022 Est. net margin – 2021 Net margin – 2020 Net margin – 2019 Share “buy” ratings Closing price – July 9 Cons. price target Implied 12-month upside potential
Boston Beer Co. Class A /zigman2/quotes/205338227/composite SAM 13.35% 12.30% 11.03% 8.80% 53% $973.58 $1,352.80 39%
Dorian LPG Ltd. /zigman2/quotes/209006328/composite LPG 39.31% 27.80% 25.02% 24.37% 86% $12.80 $17.00 33%
IAA Inc. /zigman2/quotes/212739891/composite IAA 18.31% 17.29% 14.07% 13.45% 90% $54.98 $71.50 30%
Take-Two Interactive Software Inc. /zigman2/quotes/204008930/composite TTWO 19.42% 18.42% 14.96% 11.81% 71% $170.37 $221.27 30%
Haemonetics Corp. /zigman2/quotes/205816408/composite HAE 14.80% 13.82% 12.23% 7.98% 86% $63.48 $80.29 26%
Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI 34.57% 33.36% 27.16% 23.30% 88% $92.38 $116.03 26%
SPS Commerce Inc. /zigman2/quotes/209504138/composite SPSC 17.84% 16.68% 14.58% 12.08% 67% $100.77 $125.29 24%
FMC Corp. /zigman2/quotes/200631712/composite FMC 19.46% 18.51% 12.46% 11.70% 79% $107.66 $133.12 24%
First Horizon Corp. /zigman2/quotes/207362765/composite FHN 29.93% 29.02% 24.81% 19.39% 87% $16.79 $20.54 22%
Applied Materials Inc. /zigman2/quotes/209393259/composite AMAT 27.08% 26.52% 21.14% 18.73% 76% $134.90 $161.92 20%
Investors Bancorp Inc. 35.09% 34.27% 21.14% 17.87% 71% $13.70 $16.29 19%
Baxter International Inc. /zigman2/quotes/207334572/composite BAX 15.27% 14.18% 9.44% 8.81% 56% $80.43 $94.25 17%
Cirrus Logic Inc. /zigman2/quotes/208789077/composite CRUS 19.62% 19.07% 14.92% 12.52% 75% $85.79 $100.27 17%
Parker-Hannifin Corp. /zigman2/quotes/202924304/composite PH 14.48% 13.97% 10.60% 9.63% 77% $311.57 $361.00 16%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX 17.35% 16.14% 11.05% 9.26% 76% $535.98 $615.69 15%
Sempra Energy /zigman2/quotes/206074517/composite SRE 21.63% 21.09% 18.35% 16.98% 60% $132.86 $151.13 14%
Aon PLC Class A /zigman2/quotes/203448336/composite AON 22.18% 21.42% 17.79% 13.92% 47% $236.31 $266.33 13%
Helen of Troy Ltd. /zigman2/quotes/205565021/composite HELE 14.11% 13.62% 11.54% 10.76% 40% $215.25 $242.50 13%
Monolithic Power Systems Inc. /zigman2/quotes/204177258/composite MPWR 29.35% 28.44% 19.47% 17.33% 79% $382.60 $428.00 12%
Analog Devices Inc. /zigman2/quotes/201631938/composite ADI 36.18% 35.12% 23.28% 21.60% 83% $166.27 $185.80 12%
Source: FactSet

Click on the tickers for more about each company, including news, business profiles and price ratios. As always, do your own research to form your own opinion about a company’s long-term viability before considering an investment.

Don’t miss: Bank earnings preview — pullback gives you an opportunity to buy the stocks

/zigman2/quotes/210599714/realtime
US : S&P US
4,064.34
+3.91 +0.10%
Volume: 0.00
Jan. 27, 2023 9:57a
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/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 363.55
-1.32 -0.36%
Volume: 552,115
Jan. 27, 2023 9:57a
P/E Ratio
36.60
Dividend Yield
N/A
Market Cap
$163.75 billion
Rev. per Employee
$2.80M
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/zigman2/quotes/200646538/composite
US : U.S.: Nasdaq
$ 596.65
-1.93 -0.32%
Volume: 86,745
Jan. 27, 2023 9:57a
P/E Ratio
22.67
Dividend Yield
3.10%
Market Cap
$250.14 billion
Rev. per Employee
$1.66M
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/zigman2/quotes/201611010/composite
US : U.S.: NYSE
$ 104.01
-0.31 -0.30%
Volume: 136,826
Jan. 27, 2023 9:57a
P/E Ratio
18.54
Dividend Yield
4.88%
Market Cap
$160.32 billion
Rev. per Employee
$453,075
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/zigman2/quotes/210600453/delayed
XX : S&P US
930.40
-0.14 -0.02%
Volume: 274.48M
Jan. 27, 2023 9:47a
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/zigman2/quotes/219506813/composite
US : U.S.: NYSE Arca
$ 43.95
+0.62 +1.44%
Volume: 25.00
Jan. 26, 2023 4:10p
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/zigman2/quotes/210599868/delayed
US : S&P US
1,244.47
+0.33 +0.03%
Volume: 25.44M
Jan. 27, 2023 9:47a
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/zigman2/quotes/205338227/composite
US : U.S.: NYSE
$ 387.26
-2.66 -0.68%
Volume: 2,077
Jan. 27, 2023 9:35a
P/E Ratio
179.40
Dividend Yield
N/A
Market Cap
$4.79 billion
Rev. per Employee
$782,895
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/zigman2/quotes/209006328/composite
US : U.S.: NYSE
$ 18.59
+0.27 +1.47%
Volume: 32,721
Jan. 27, 2023 9:57a
P/E Ratio
7.66
Dividend Yield
0.00%
Market Cap
$739.22 million
Rev. per Employee
$556,332
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/zigman2/quotes/212739891/composite
US : U.S.: NYSE
$ 41.00
+0.15 +0.37%
Volume: 47,918
Jan. 27, 2023 9:56a
P/E Ratio
19.16
Dividend Yield
N/A
Market Cap
$5.47 billion
Rev. per Employee
$477,620
loading...
/zigman2/quotes/204008930/composite
US : U.S.: Nasdaq
$ 114.63
+2.74 +2.44%
Volume: 287,396
Jan. 27, 2023 9:57a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.58 billion
Rev. per Employee
$555,091
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/zigman2/quotes/205816408/composite
US : U.S.: NYSE
$ 87.79
-0.11 -0.13%
Volume: 4,502
Jan. 27, 2023 9:56a
P/E Ratio
51.97
Dividend Yield
N/A
Market Cap
$4.58 billion
Rev. per Employee
$384,160
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/zigman2/quotes/200717283/composite
US : U.S.: Nasdaq
$ 75.49
-0.11 -0.15%
Volume: 248,068
Jan. 27, 2023 9:57a
P/E Ratio
35.38
Dividend Yield
0.62%
Market Cap
$59.17 billion
Rev. per Employee
$750,714
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/zigman2/quotes/209504138/composite
US : U.S.: Nasdaq
$ 136.86
+0.15 +0.11%
Volume: 2,293
Jan. 27, 2023 9:56a
P/E Ratio
96.93
Dividend Yield
N/A
Market Cap
$4.92 billion
Rev. per Employee
$227,045
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/zigman2/quotes/200631712/composite
US : U.S.: NYSE
$ 132.04
+1.14 +0.87%
Volume: 19,444
Jan. 27, 2023 9:55a
P/E Ratio
25.56
Dividend Yield
1.76%
Market Cap
$16.23 billion
Rev. per Employee
$874,047
loading...
/zigman2/quotes/207362765/composite
US : U.S.: NYSE
$ 24.63
+0.0050 +0.02%
Volume: 78,549
Jan. 27, 2023 9:56a
P/E Ratio
16.07
Dividend Yield
2.44%
Market Cap
$13.22 billion
Rev. per Employee
$444,896
loading...
/zigman2/quotes/209393259/composite
US : U.S.: Nasdaq
$ 112.31
-3.27 -2.83%
Volume: 876,702
Jan. 27, 2023 9:57a
P/E Ratio
15.08
Dividend Yield
0.93%
Market Cap
$97.57 billion
Rev. per Employee
$778,333
loading...
/zigman2/quotes/207334572/composite
US : U.S.: NYSE
$ 46.16
0.0000 0.0000%
Volume: 89,538
Jan. 27, 2023 9:57a
P/E Ratio
N/A
Dividend Yield
2.52%
Market Cap
$23.27 billion
Rev. per Employee
$245,667
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/zigman2/quotes/208789077/composite
US : U.S.: Nasdaq
$ 89.63
-0.45 -0.50%
Volume: 6,282
Jan. 27, 2023 9:56a
P/E Ratio
14.85
Dividend Yield
N/A
Market Cap
$4.96 billion
Rev. per Employee
$1.24M
loading...
/zigman2/quotes/202924304/composite
US : U.S.: NYSE
$ 315.89
+1.48 +0.47%
Volume: 29,707
Jan. 27, 2023 9:57a
P/E Ratio
32.74
Dividend Yield
1.69%
Market Cap
$39.83 billion
Rev. per Employee
$296,453
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 363.55
-1.32 -0.36%
Volume: 552,115
Jan. 27, 2023 9:57a
P/E Ratio
36.60
Dividend Yield
N/A
Market Cap
$163.75 billion
Rev. per Employee
$2.80M
loading...
/zigman2/quotes/206074517/composite
US : U.S.: NYSE
$ 160.46
-0.04 -0.02%
Volume: 90,295
Jan. 27, 2023 9:57a
P/E Ratio
22.60
Dividend Yield
2.85%
Market Cap
$49.97 billion
Rev. per Employee
$983,431
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/zigman2/quotes/203448336/composite
US : U.S.: NYSE
$ 322.29
-2.55 -0.79%
Volume: 31,475
Jan. 27, 2023 9:57a
P/E Ratio
25.08
Dividend Yield
0.69%
Market Cap
$67.19 billion
Rev. per Employee
$248,580
loading...
/zigman2/quotes/205565021/composite
US : U.S.: Nasdaq
$ 108.97
+0.33 +0.30%
Volume: 3,389
Jan. 27, 2023 9:56a
P/E Ratio
17.86
Dividend Yield
N/A
Market Cap
$2.64 billion
Rev. per Employee
$1.01M
loading...
/zigman2/quotes/204177258/composite
US : U.S.: Nasdaq
$ 427.08
-5.68 -1.31%
Volume: 28,139
Jan. 27, 2023 9:56a
P/E Ratio
52.71
Dividend Yield
0.70%
Market Cap
$19.94 billion
Rev. per Employee
$602,467
loading...
/zigman2/quotes/201631938/composite
US : U.S.: Nasdaq
$ 169.99
-0.75 -0.44%
Volume: 167,932
Jan. 27, 2023 9:57a
P/E Ratio
32.09
Dividend Yield
1.80%
Market Cap
$86.96 billion
Rev. per Employee
$491,368
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