Profitability is likely to be a marquee theme in 2022 as investors eschew junkier equities in favor of quality fare. An extension of that theme is embracing high-margin firms.
Enter the Goldman Sachs Innovate Equity ETF (GINN). GINN, which tracks the Solactive Innovative Global Equity Index (Net total Return, Unhedged, USD), is full of quality companies with robust profitability, stout earnings and revenue growth, and impressive margin-managing capabilities.
While not in direct relation to GINN, Goldman Sachs is advising clients to embrace high-margin companies in 2022.
“Goldman recommended investors look to stocks with high margins, which signal quality and indicate a stock is likely to outperform low-margin counterparts while macro conditions are uncertain and financial conditions are tightening,” reports Tanya Macheel for CNBC, citing Goldman strategist David Kostin.
The bank recently published a list of 10 high-margin companies with stellar sales growth that have the potential to reward investors in 2022.
“They’re Russell 3000 companies, excluding financials, with market caps greater than $5 billion, consensus revenue growth of more than 15% for 2023 and margins over 20% for 2023,” according to CNBC.
The group includes several GINN components. Google parent Alphabet (NASDAQ:GOOG) is on the list, as is Meta Platforms (NASDAQ:FB), the company formerly known as Facebook. Those stocks combine for 4.2% of GINN’s roster and are both among the exchange traded fund’s top 10 holdings.
GINN significantly reduces single stock risk by allocating no more than 2.5% of its weight to any of its 465 holdings. Apple (NASDAQ:AAPL) is the largest component in the ETF.
“Earnings and margins continue to surpass expectations. Meanwhile nominal and real rates are expected to rise but remain low over the coming months, supporting the backdrop for both valuation and equity demand,” Kostin said.
Other GINN holdings on the Goldman high-margin list include Marvell Technology (NASDAQ:MRVL), Mastercard (NYSE:MA), and PayPal (NASDAQ:PYPL).
Autodesk (NASDAQ:ADSK) and e-commerce giant Etsy (NASDAQ:ETSY) also make the Goldman high-margin list, and both are members of the GINN lineup.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.