Due to the Corona/covid-19 crisis, Goldman’s equity strategists are forecasting a +30% drop in S&P 500 earnings per share in 2020 from last year. They expect that revenues are hit hard and share buybacks are on hold to save cash. Goldman equity strategists screened for stocks that investors should consider owning in the current challenging environment.
‘Margin of Safety’
They identified 26 companies with above-average market capitalizations and liquidity, balance-sheet strength (per their Altman Z-score), and cheap valuations—after assuming a 20% drop in earnings per share and relative to their 2009 lows.
The Altman Z Score Formula in short: Altman Z score of greater than 2.99 means that the entity being measured is safe from bankruptcy (“Safe-zone”). A score of less than 1.81 means that a business is at considerable risk of going into bankruptcy (“Bankruptcy-zone”), while scores in between should be considered a red flag for possible problems.(“Grey-zone”)
These companies should offer investors a ‘Margin of Safety’ from a valuation perspective that is certainly appropriate for the current chaotic investment environment, according to Goldman’s equity strategists.
Dividend Aristocrats and Kings
The list of 26 stocks contains also some dividend aristocrats and dividend kings. T. Row Price (TROW), Lowe’s Companies and Walgreens Boots Alliance are part of the 25+ consecutive dividend group and Altria Group (MO) is a dividendking.
The table below lists the 26 stock of the Goldman ‘Margin of Safety’ Screener, including the Altman Z-score and their dividend yield.