(Head Topics - United States) - David Kostin advised investors to choose stocks with consistent earnings growth ahead of what he projects will be a economic downturn in the U.S.
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Stocks with steady earnings growth are the play to manage an upcoming economic downturn, according to David Kostin, Goldman Sachs' chief U.S. equity strategist. He said on Tuesday on CNBC's " Squawk on the Street " that companies will continue to experience margin degradation as they struggle with pricing power and inflation.
He noted that the materials, health-care, communication services and technology sectors are anticipated to have an earnings downturn of approximately 15% to 20% year over year.
Goldman Sachs projects that there is a 35% probability that the U.S. economy will enter a recession within the next 12 months. "The companies with the strongest balance sheets, they have outperformed. That is already priced into the equity market," Kostin said." What's perhaps not priced in our view, would be the stable growth companies."
The equity strategist named household products company Colgate-Palmolive and biotechnology name Amgen as examples of stocks with low variability of earnings growth in an environment that's laden with recession risk. Colgate-Palmolive and Amgen are among the names Goldman recently highlighted in its table growth basket.
Constituents in the health-care sector include Encompass Health and McKesson . Shares of Encompass Health are up about 4% 2023, while McKesson's stock has declined 1.9%. The firm also picked pest-control company Rollins and consumer goods company Procter & Gamble in its basket of steady earnings growers. P & G's dividend yield of 2.4% also makes it a "fortress stock" during a volatile market environment.
CNBC's Michael Bloom contributed to this report...
April 11, 2023
