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Philip van Doorn

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Dec. 10, 2019, 7:05 a.m. EST

These companies have low labor costs that can turn into a stock payday for you

Apple makes this list. So do Netflix and Take-Two Interactive Software.

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By Philip van Doorn, MarketWatch


Bloomberg
Borderlands 3 was developed by 2K Games, a unit of Take-Two Interactive Software.

One of the best aspects of the slow but sustained growth of the U.S. economy has been that hourly wages have been growing faster than the overall economy. This is wonderful for consumers. But with slow growth overall, the tight labor market can put a damper on corporate profits and hurt investors’ returns.

To counter that, investors should focus on “stocks with low labor costs, which are relatively insulated from wage pressures,” according to Goldman Sachs analysts led by David J. Kostin. The analysts listed 50 companies in all 11 sectors of the S&P 500 with relatively low labor costs relative to revenue, ranging from Apple /zigman2/quotes/202934861/composite AAPL -0.76%  to Valero Energy /zigman2/quotes/200735463/composite VLO -3.15% .

Goldman’s economics team expects U.S. real GDP growth to average 2.5% during 2020. But the equity analysts expect that for S&P 500 /zigman2/quotes/210599714/realtime SPX -0.48%  companies, “continued wage and input cost pressures will limit margin expansion to just 13 [basis points] in 2020 and 5 bp in 2021.” (A basis point, or bp, is one-hundredth of a percentage point.) That’s after an estimated net profit margin contraction of 65 basis points for 2019, attributed by Goldman to “180 bp margin compression in the Energy sector and declines in a few large-cap technology stocks.”

The U.S. economy added 266,000 jobs during November, with the unemployment rate declining to 3.5%, to match its lowest level since 1969. Average hourly wages were up 3.1%, according to the Bureau of Labor Statistics. That compares to an estimated GDP growth rate of 2.1% for the third quarter.

So there you have it — good news for wage earners, but a mixed bag for investors.

Paring Goldman’s list

To be sure, relatively low labor costs aren’t the only thing an investor should consider when selecting stocks. A momentum trade is one thing, but if you are looking for long-term investments, you need to understand each company’s strategy and decide for yourself which may be worth owning.

This summary of sell-side analysts opinions (along with the labor costs and total returns on the second table below) offers more information to consider. We narrowed down Goldman’s list to the 20 companies with the highest percentages of “buy” or equivalent ratings among analysts polled by FactSet.

Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - Dec. 6 Consensus price target Implied 12-month upside potential
Cigna Corp. /zigman2/quotes/208431372/composite CI 88% 12% 0% $198.93 $220.44 11%
PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL 81% 17% 2% $104.34 $127.53 22%
Valero Energy Corp. /zigman2/quotes/200735463/composite VLO 80% 20% 0% $93.61 $108.78 16%
NRG Energy Inc. /zigman2/quotes/208308731/composite NRG 80% 10% 10% $38.47 $48.11 25%
Take-Two Interactive Software Inc. /zigman2/quotes/204008930/composite TTWO 75% 18% 7% $123.73 $136.30 10%
Lincoln National Corp. /zigman2/quotes/205272400/composite LNC 73% 27% 0% $57.77 $70.13 21%
PVH Corp. /zigman2/quotes/208313660/composite PVH 69% 26% 5% $101.41 $108.89 7%
Synchrony Financial /zigman2/quotes/203661733/composite SYF 67% 33% 0% $37.76 $39.83 5%
Masco Corp. /zigman2/quotes/202412472/composite MAS 67% 33% 0% $46.36 $51.38 11%
Cabot Oil & Gas Corp. /zigman2/quotes/205804016/composite COG 63% 30% 7% $16.08 $22.00 37%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX 63% 28% 9% $307.35 $365.06 19%
ViacomCBS Inc. Class B /zigman2/quotes/200340870/composite VIAC 63% 29% 8% $39.72 $47.55 20%
Archer-Daniels-Midland Co. /zigman2/quotes/203479136/composite ADM 62% 38% 0% $43.91 $47.80 9%
Align Technology Inc. /zigman2/quotes/200300692/composite ALGN 61% 33% 6% $275.72 $269.73 -2%
FleetCor Technologies Inc. /zigman2/quotes/205312429/composite FLT 61% 39% 0% $307.78 $325.19 6%
Micron Technology Inc. /zigman2/quotes/205710729/composite MU 60% 31% 9% $47.93 $54.94 15%
Coca-Cola Co. /zigman2/quotes/209159848/composite KO 59% 41% 0% $54.42 $58.90 8%
Gilead Sciences Inc. /zigman2/quotes/210293917/composite GILD 57% 39% 4% $67.08 $77.63 16%
Apple Inc. /zigman2/quotes/202934861/composite AAPL 57% 29% 14% $270.71 $260.98 -4%
Lam Research Corp. /zigman2/quotes/208077897/composite LRCX 54% 38% 8% $269.86 $271.73 1%
Sources: Goldman Sachs, FactSet

You can click the tickers for more about each company, including price ratios and news coverage.

Here’s the list again, with Goldman’s estimates of labor cost as a percentage of revenue and total returns for the stocks:

Company Ticker Estimated labor cost/ revenue Total return - 2019 through Dec. 6 Total return - 3 Years Total return - 5 Years
Cigna Corp. /zigman2/quotes/208431372/composite CI 10% 4.8% 45% 90%
PayPal Holdings Inc. /zigman2/quotes/208054269/composite PYPL 10% 24.1% 168% N/A
Valero Energy Corp. /zigman2/quotes/200735463/composite VLO 1% 30.3% 62% 126%
NRG Energy Inc. /zigman2/quotes/208308731/composite NRG 6% -2.6% 230% 45%
Take-Two Interactive Software Inc. /zigman2/quotes/204008930/composite TTWO 10% 20.2% 158% 345%
Lincoln National Corp. /zigman2/quotes/205272400/composite LNC 5% 15.5% -7% 11%
PVH Corp. /zigman2/quotes/208313660/composite PVH 4% 9.3% -4% -17%
Synchrony Financial /zigman2/quotes/203661733/composite SYF 5% 65.1% 13% 39%
Masco Corp. /zigman2/quotes/202412472/composite MAS 12% 60.6% 54% 126%
Cabot Oil & Gas Corp. /zigman2/quotes/205804016/composite COG 1% -26.8% -29% -46%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX 9% 14.8% 147% 513%
ViacomCBS Inc. Class B /zigman2/quotes/200340870/composite VIAC 2% -8.1% -32% -23%
Archer-Daniels-Midland Co. /zigman2/quotes/203479136/composite ADM 3% 10.9% 8% -4%
Align Technology Inc. /zigman2/quotes/200300692/composite ALGN 2% 31.7% 186% 386%
FleetCor Technologies Inc. /zigman2/quotes/205312429/composite FLT 10% 65.7% 106% 102%
Micron Technology Inc. /zigman2/quotes/205710729/composite MU 7% 51.1% 151% 31%
Coca-Cola Co. /zigman2/quotes/209159848/composite KO 3% 18.6% 48% 47%
Gilead Sciences Inc. /zigman2/quotes/210293917/composite GILD 8% 10.3% 2% -27%
Apple Inc. /zigman2/quotes/202934861/composite AAPL 3% 74.2% 158% 156%
Lam Research Corp. /zigman2/quotes/208077897/composite LRCX 9% 101.5% 177% 248%
Sources: Goldman Sachs, FactSet

Don’t miss: These are the 20 best-performing stocks of the past decade, and some of them will surprise you

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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 114.09
-0.87 -0.76%
Volume: 100.06M
Sept. 29, 2020 4:00p
P/E Ratio
34.69
Dividend Yield
0.72%
Market Cap
$1993.10 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/200735463/composite
US : U.S.: NYSE
$ 43.41
-1.41 -3.15%
Volume: 4.39M
Sept. 29, 2020 4:00p
P/E Ratio
16.84
Dividend Yield
9.03%
Market Cap
$18.28 billion
Rev. per Employee
$11.41M
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,335.47
-16.13 -0.48%
Volume: 1.95B
Sept. 29, 2020 5:06p
loading...
/zigman2/quotes/208431372/composite
US : U.S.: NYSE
$ 164.31
+0.02 +0.01%
Volume: 1.46M
Sept. 29, 2020 4:00p
P/E Ratio
11.69
Dividend Yield
0.02%
Market Cap
$60.33 billion
Rev. per Employee
$658,753
loading...
/zigman2/quotes/208054269/composite
US : U.S.: Nasdaq
$ 194.50
+2.48 +1.29%
Volume: 6.77M
Sept. 29, 2020 4:00p
P/E Ratio
89.26
Dividend Yield
N/A
Market Cap
$225.30 billion
Rev. per Employee
$710,138
loading...
/zigman2/quotes/200735463/composite
US : U.S.: NYSE
$ 43.41
-1.41 -3.15%
Volume: 4.39M
Sept. 29, 2020 4:00p
P/E Ratio
16.84
Dividend Yield
9.03%
Market Cap
$18.28 billion
Rev. per Employee
$11.41M
loading...
/zigman2/quotes/208308731/composite
US : U.S.: NYSE
$ 29.70
+0.18 +0.61%
Volume: 2.26M
Sept. 29, 2020 4:00p
P/E Ratio
1.76
Dividend Yield
4.04%
Market Cap
$7.21 billion
Rev. per Employee
$1.96M
loading...
/zigman2/quotes/204008930/composite
US : U.S.: Nasdaq
$ 164.34
-3.12 -1.86%
Volume: 1.22M
Sept. 29, 2020 4:00p
P/E Ratio
42.09
Dividend Yield
N/A
Market Cap
$19.15 billion
Rev. per Employee
$574,279
loading...
/zigman2/quotes/205272400/composite
US : U.S.: NYSE
$ 30.94
-1.11 -3.46%
Volume: 2.24M
Sept. 29, 2020 4:00p
P/E Ratio
27.41
Dividend Yield
5.17%
Market Cap
$6.19 billion
Rev. per Employee
$1.47M
loading...
/zigman2/quotes/208313660/composite
US : U.S.: NYSE
$ 58.69
-3.20 -5.17%
Volume: 1.13M
Sept. 29, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$4.40 billion
Rev. per Employee
$264,978
loading...
/zigman2/quotes/203661733/composite
US : U.S.: NYSE
$ 25.55
-0.24 -0.93%
Volume: 3.38M
Sept. 29, 2020 4:00p
P/E Ratio
7.82
Dividend Yield
3.44%
Market Cap
$15.06 billion
Rev. per Employee
$918,424
loading...
/zigman2/quotes/202412472/composite
US : U.S.: NYSE
$ 56.12
-0.60 -1.06%
Volume: 1.46M
Sept. 29, 2020 4:03p
P/E Ratio
34.91
Dividend Yield
1.00%
Market Cap
$14.77 billion
Rev. per Employee
$321,500
loading...
/zigman2/quotes/205804016/composite
US : U.S.: NYSE
$ 17.64
-0.43 -2.38%
Volume: 5.97M
Sept. 29, 2020 4:02p
P/E Ratio
22.37
Dividend Yield
2.27%
Market Cap
$7.20 billion
Rev. per Employee
$7.07M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 493.48
+2.83 +0.58%
Volume: 3.54M
Sept. 29, 2020 4:00p
P/E Ratio
83.26
Dividend Yield
N/A
Market Cap
$216.38 billion
Rev. per Employee
$2.22M
loading...
/zigman2/quotes/200340870/composite
US : U.S.: Nasdaq
$ 28.96
-0.88 -2.95%
Volume: 11.47M
Sept. 29, 2020 4:00p
P/E Ratio
14.15
Dividend Yield
3.31%
Market Cap
$18.49 billion
Rev. per Employee
$867,543
loading...
/zigman2/quotes/203479136/composite
US : U.S.: NYSE
$ 45.98
-0.52 -1.12%
Volume: 1.72M
Sept. 29, 2020 4:00p
P/E Ratio
14.62
Dividend Yield
3.13%
Market Cap
$25.84 billion
Rev. per Employee
$2.03M
loading...
/zigman2/quotes/200300692/composite
US : U.S.: Nasdaq
$ 320.17
-2.69 -0.83%
Volume: 452,371
Sept. 29, 2020 4:00p
P/E Ratio
14.89
Dividend Yield
N/A
Market Cap
$25.44 billion
Rev. per Employee
$168,653
loading...
/zigman2/quotes/205312429/composite
US : U.S.: NYSE
$ 240.75
-0.96 -0.40%
Volume: 1.01M
Sept. 29, 2020 4:00p
P/E Ratio
28.00
Dividend Yield
N/A
Market Cap
$20.32 billion
Rev. per Employee
$321,041
loading...
/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 50.71
+0.99 +1.99%
Volume: 36.09M
Sept. 29, 2020 4:00p
P/E Ratio
25.46
Dividend Yield
N/A
Market Cap
$55.24 billion
Rev. per Employee
$832,917
loading...
/zigman2/quotes/209159848/composite
US : U.S.: NYSE
$ 48.92
-0.36 -0.73%
Volume: 12.43M
Sept. 29, 2020 4:00p
P/E Ratio
23.01
Dividend Yield
3.35%
Market Cap
$211.68 billion
Rev. per Employee
$506,342
loading...
/zigman2/quotes/210293917/composite
US : U.S.: Nasdaq
$ 62.10
-0.75 -1.19%
Volume: 8.67M
Sept. 29, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
4.38%
Market Cap
$78.80 billion
Rev. per Employee
$2.02M
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 114.09
-0.87 -0.76%
Volume: 100.06M
Sept. 29, 2020 4:00p
P/E Ratio
34.69
Dividend Yield
0.72%
Market Cap
$1993.10 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/208077897/composite
US : U.S.: Nasdaq
$ 337.71
+2.40 +0.72%
Volume: 1.81M
Sept. 29, 2020 4:00p
P/E Ratio
22.33
Dividend Yield
1.54%
Market Cap
$48.84 billion
Rev. per Employee
$996,856
loading...
/zigman2/quotes/208431372/composite
US : U.S.: NYSE
$ 164.31
+0.02 +0.01%
Volume: 1.46M
Sept. 29, 2020 4:00p
P/E Ratio
11.69
Dividend Yield
0.02%
Market Cap
$60.33 billion
Rev. per Employee
$658,753
loading...
/zigman2/quotes/208054269/composite
US : U.S.: Nasdaq
$ 194.50
+2.48 +1.29%
Volume: 6.77M
Sept. 29, 2020 4:00p
P/E Ratio
89.26
Dividend Yield
N/A
Market Cap
$225.30 billion
Rev. per Employee
$710,138
loading...
/zigman2/quotes/200735463/composite
US : U.S.: NYSE
$ 43.41
-1.41 -3.15%
Volume: 4.39M
Sept. 29, 2020 4:00p
P/E Ratio
16.84
Dividend Yield
9.03%
Market Cap
$18.28 billion
Rev. per Employee
$11.41M
loading...
/zigman2/quotes/208308731/composite
US : U.S.: NYSE
$ 29.70
+0.18 +0.61%
Volume: 2.26M
Sept. 29, 2020 4:00p
P/E Ratio
1.76
Dividend Yield
4.04%
Market Cap
$7.21 billion
Rev. per Employee
$1.96M
loading...
/zigman2/quotes/204008930/composite
US : U.S.: Nasdaq
$ 164.34
-3.12 -1.86%
Volume: 1.22M
Sept. 29, 2020 4:00p
P/E Ratio
42.09
Dividend Yield
N/A
Market Cap
$19.15 billion
Rev. per Employee
$574,279
loading...
/zigman2/quotes/205272400/composite
US : U.S.: NYSE
$ 30.94
-1.11 -3.46%
Volume: 2.24M
Sept. 29, 2020 4:00p
P/E Ratio
27.41
Dividend Yield
5.17%
Market Cap
$6.19 billion
Rev. per Employee
$1.47M
loading...
/zigman2/quotes/208313660/composite
US : U.S.: NYSE
$ 58.69
-3.20 -5.17%
Volume: 1.13M
Sept. 29, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$4.40 billion
Rev. per Employee
$264,978
loading...
/zigman2/quotes/203661733/composite
US : U.S.: NYSE
$ 25.55
-0.24 -0.93%
Volume: 3.38M
Sept. 29, 2020 4:00p
P/E Ratio
7.82
Dividend Yield
3.44%
Market Cap
$15.06 billion
Rev. per Employee
$918,424
loading...
/zigman2/quotes/202412472/composite
US : U.S.: NYSE
$ 56.12
-0.60 -1.06%
Volume: 1.46M
Sept. 29, 2020 4:03p
P/E Ratio
34.91
Dividend Yield
1.00%
Market Cap
$14.77 billion
Rev. per Employee
$321,500
loading...
/zigman2/quotes/205804016/composite
US : U.S.: NYSE
$ 17.64
-0.43 -2.38%
Volume: 5.97M
Sept. 29, 2020 4:02p
P/E Ratio
22.37
Dividend Yield
2.27%
Market Cap
$7.20 billion
Rev. per Employee
$7.07M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 493.48
+2.83 +0.58%
Volume: 3.54M
Sept. 29, 2020 4:00p
P/E Ratio
83.26
Dividend Yield
N/A
Market Cap
$216.38 billion
Rev. per Employee
$2.22M
loading...
/zigman2/quotes/200340870/composite
US : U.S.: Nasdaq
$ 28.96
-0.88 -2.95%
Volume: 11.47M
Sept. 29, 2020 4:00p
P/E Ratio
14.15
Dividend Yield
3.31%
Market Cap
$18.49 billion
Rev. per Employee
$867,543
loading...
/zigman2/quotes/203479136/composite
US : U.S.: NYSE
$ 45.98
-0.52 -1.12%
Volume: 1.72M
Sept. 29, 2020 4:00p
P/E Ratio
14.62
Dividend Yield
3.13%
Market Cap
$25.84 billion
Rev. per Employee
$2.03M
loading...
/zigman2/quotes/200300692/composite
US : U.S.: Nasdaq
$ 320.17
-2.69 -0.83%
Volume: 452,371
Sept. 29, 2020 4:00p
P/E Ratio
14.89
Dividend Yield
N/A
Market Cap
$25.44 billion
Rev. per Employee
$168,653
loading...
/zigman2/quotes/205312429/composite
US : U.S.: NYSE
$ 240.75
-0.96 -0.40%
Volume: 1.01M
Sept. 29, 2020 4:00p
P/E Ratio
28.00
Dividend Yield
N/A
Market Cap
$20.32 billion
Rev. per Employee
$321,041
loading...
/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 50.71
+0.99 +1.99%
Volume: 36.09M
Sept. 29, 2020 4:00p
P/E Ratio
25.46
Dividend Yield
N/A
Market Cap
$55.24 billion
Rev. per Employee
$832,917
loading...
/zigman2/quotes/209159848/composite
US : U.S.: NYSE
$ 48.92
-0.36 -0.73%
Volume: 12.43M
Sept. 29, 2020 4:00p
P/E Ratio
23.01
Dividend Yield
3.35%
Market Cap
$211.68 billion
Rev. per Employee
$506,342
loading...
/zigman2/quotes/210293917/composite
US : U.S.: Nasdaq
$ 62.10
-0.75 -1.19%
Volume: 8.67M
Sept. 29, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
4.38%
Market Cap
$78.80 billion
Rev. per Employee
$2.02M
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 114.09
-0.87 -0.76%
Volume: 100.06M
Sept. 29, 2020 4:00p
P/E Ratio
34.69
Dividend Yield
0.72%
Market Cap
$1993.10 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/208077897/composite
US : U.S.: Nasdaq
$ 337.71
+2.40 +0.72%
Volume: 1.81M
Sept. 29, 2020 4:00p
P/E Ratio
22.33
Dividend Yield
1.54%
Market Cap
$48.84 billion
Rev. per Employee
$996,856
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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