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Monday April 1, 2019

// April 1st, 2019 // Daily News

Goldman: Earnings outlook is getting grimmer by the day, so hide out in companies with big margins

Headed into the first-quarter reporting season, investors are bracing for the first earnings decline for S&P 500 firms in more than two years.
In such a slowdown, investors should focus on companies with high and stable gross margins, also known as high pricing power, according to Goldman Sachs.
“As margin pressures mount, investors should focus on companies that have demonstrated the ability to maintain margins through pricing power,” says Goldman chief U.S. equity strategist David Kostin.

CNBC.com

Things are about to get dicey after the stock market’s record quarter.
Investors are bracing for a drastic earnings slowdown headed into the first-quarter reporting season — Wall Street analysts are projecting a 3.9 percent earnings decline for S&P 500 firms in the first quarter, the first year-over-year decline since the second quarter of 2016, according to FactSet. That is a 7.2 percent drop from the previous quarter, the largest cut in three years.
In such a slowdown, investors should focus on companies with high and stable gross margins, also known as high pricing power, according to Goldman Sachs.
“All 11 sectors have experienced negative 2019 EPS revisions since the start of the year,” Goldman chief U.S. equity strategist David Kostin said in a note on Saturday. “As margin pressures mount, investors should focus on companies that have demonstrated the ability to maintain margins through pricing power.”
As slowing demand and rising costs put pressure on companies, it becomes harder for them to generate additional sales growth. In fact, net margins for the S&P 500 companies are expected to fall to levels unseen since the financial crisis, Goldman said. This is why investors should be hiding out in stocks of companies that tend to be less affected by rising costs.
“Executives cautioned investors on margins as they reported 4Q 2018 earnings, citing both trade tensions with China and the continued tightening of the labor market as factors contributing to margin uncertainty in 2019,” Kostin said.
Companies with big margins have a track record of outperformance in periods of profit margin pressure. They have beaten the market since at least 1985 whenever there was an expected margin decline, the bank said.
Goldman screened stocks for high pricing power by examining the level, variability, and recent momentum or company gross margins relative to sector peers. It identified Nike, Home Depot, Coty and Adobe as companies with high pricing power.

Today’s Inspiration

The Fast Pace of Life

We really do live in a time-crunched world; just about everything we do seems to be urgent. We live under incredible pressure and run from one thing to the next—to the point that we may neglect the things that are really important in life: family, our health, God, and building up our spiritual lives.

The truth is, we cannot handle life apart from God. We cannot handle the pressure, the confusion, and the stress without Him. Our marriages will suffer, we will experience financial pressure, and our relationships won’t thrive if we do not study God’s Word and take time to pray.

But there is good news to be thankful for—God will strengthen us and enable us to handle life peacefully and wisely if we start praying about things instead of merely trying to get through the day. God will renew our strength and enable us to handle life and not be weary (see Isaiah 40:31).

Prayer Starter: Father, I am so thankful that You give me peace and rest even in the midst of a busy life. Help me to lean on You today and use wisdom in setting my schedule. You are the strength of my life, and I totally depend on You. In Jesus’ Name, Amen.