As companies’ margins collapse, Goldman tells clients to buy this portfolio of profit growers

As companies' margins collapse, Goldman tells clients to buy this portfolio of profit growers thumbnail

The New York Stock Exchange (NYSE) is pictures on May 26, 2020 at Wall Street in New York City.Johannes Eisele | AFP | Getty Images(This story is for CNBC Pro subscribers only.)U.S. companies, which suffered the second largest quarterly decline in margins since 1970, will have a difficult time bouncing back this year amid endless uncertainty on multiple fronts, Goldman Sachs said. However, a number of stocks will be able to buck the trend and grow profits in 2020.The bank reiterated its year-end S&P 500 price target of 3000, below Friday’s close of 3,044.31.The S&P 500 rallied above the 3,000 level last week amid optimism about the economy reopening. Now the market’s massive comeback is put to the test with rising risks regarding U.S.-China tensions and presidential election, which creates a difficult backdrop for companies to recover, Goldman said. “Uncertainty around virus developments and the pace of re-hiring could present fundamental challenges while escalating rhetoric around US/China trade and the 2020 election that is less than six months away present policy risks,” David Kostin, Goldman’s head of U.S. equity strategy, said in a note.The bank forecast that the S&P 500 net profit margins will decline by 200 basis points in 2020 to 8.7%, the lowest level since 2010, but will rebound toward their record high of 11.2% in 2021.In this continuous slowdown, Goldman is advising clients to buy stocks with the fastest expected return-on-equity growth. ROE is a measure of profitability that is calculated by dividing net income by shareholders’ equity.,

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