25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (2024)

There's an unusually wide gap between highly efficient companies and everyone else.
Goldman Sachs shared which firms are growing their returns on equity fastest.
Here are 25 standout stocks to consider ahead of the Q3 earnings season.

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The market's most efficient companies are separating from the pack at a crucial time in the year.

Corporate execution has been excellent once again. Earnings have continued to exceed expectations and are on pace to grow 8% in 2024, according to Goldman Sachs, which also found that returns on equity are hovering close to 21% — one of the highest rates on record.

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (4)

Wider profit margins and quicker asset turnover have helped solidify returns on equity this year, wrote David Kostin, Goldman's chief US equity strategist, in a late-September note. That's especially impressive, considering that borrowing costs have remained elevated due to lofty interest rates that have only recently started to fall.

However, not all firms are firing on all cylinders heading into the crucial Q3 earnings season and the pivotal 2024 US elections.

The gap between highly efficient companies — as measured by returns on equity — and other stocks in the S&P 500 has widened, Goldman Sachs found. There's a nearly four-percentage-point difference between the index's return on equity and that of the median stock in the index, which Kostin noted is the biggest discrepancy since 1980.

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (5)

"This gap reflects the fact that profitability has become more concentrated in recent years," Kostin wrote. He pointed out that the spread between stocks with high and low returns on equity has expanded since the financial crisis as companies relied more on leverage and cheap debt.

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (6)

These discrepancies are also visible across market sectors. Returns on equity have risen most this year for companies in consumer staples, while energy firms have seen a sizable dip in that metric, Kostin remarked. That's further evidence that stock-picking is especially vital right now.

"The wide dispersion in changes in sector profitability mirrors the relatively healthy stock-picking environment this year amid a more micro- rather than macro-driven market," Kostin wrote.

Notably, this trend of widening gaps in returns on equity may be reversing as interest rates fall and labor costs grow at a slower pace while inflation fades. This efficiency metric may also be swayed by corporate tax policy, which may change based on the outcome of the 2024 elections.

25 increasingly efficient stocks to target

In his weekly note, Kostin shared an updated list of 50 stocks set to enjoy the largest growth in returns on equity. Analysts expect these firms to grow returns on equity by 15%, versus 2% for the typical stock in the S&P 500. As a whole, these companies also trade at a modest discount to the broader index and have outperformed the median stock in 2024 by 4 percentage points.

To help investors find the cream of the crop, Business Insider trimmed the list further by only including stocks that are growing returns on equity faster than the median stock on the list.

Below are the 25 companies that made the cut, along with the ticker, market capitalization, price-to-earnings (P/E) ratio, sector, expected earnings growth for 2024, forward returns on equity, and return on equity growth for each.

1. Southwest Airlines

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (7)

Ticker: LUV

Market cap: $17.2B

P/E ratio: 479x

Sector: Industrials

2024 earnings growth: -83%

Forward return on equity: 6%

Return on equity growth: 49%

Source: Goldman Sachs

2. Stanley Black & Decker

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (8)

Ticker: SWK

Market cap: $15.9B

P/E ratio: N/A

Sector: Industrials

2024 earnings growth: 191%

Forward return on equity: 9%

Return on equity growth: 48%

Source: Goldman Sachs

3. Alexandria Real Estate Equities

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (9)

Ticker: ARE

Market cap: $21.4B

P/E ratio: 146.5x

Sector: Real Estate

2024 earnings growth: 460%

Forward return on equity: 3%

Return on equity growth: 47%

Source: Goldman Sachs

4. International Paper

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (10)

Ticker: IP

Market cap: $17.3B

P/E ratio: 39.9x

Sector: Materials

2024 earnings growth: -30%

Forward return on equity: 10%

5. Uber Technologies

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (11)

Ticker: UBER

Market cap: $148.8B

P/E ratio: 80.4x

Sector: Industrials

2024 earnings growth: 25%

Forward return on equity: 23%

Return on equity growth: 45%

Source: Goldman Sachs

6. GE Aerospace

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (12)

Ticker: GE

Market cap: $200.1B

P/E ratio: 44.6x

Sector: Industrials

2024 earnings growth: 51%

Forward return on equity: 32%

Return on equity growth: 45%

Source: Goldman Sachs

7. Advanced Micro Devices

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (13)

Ticker: AMD

Market cap: $245.9B

P/E ratio: 197.5x

Sector: Information Technology

2024 earnings growth: 29%

Forward return on equity: 13%

Return on equity growth: 42%

Source: Goldman Sachs

8. Gilead Sciences

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (14)

Ticker: GILD

Market cap: $103.4B

P/E ratio: 102.4x

Sector: Healthcare

2024 earnings growth: -43%

Forward return on equity: 36%

Return on equity growth: 31%

Source: Goldman Sachs

9. Allstate

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (15)

Ticker: ALL

Market cap: $50.6B

P/E ratio: 17.2x

Sector: Financials

2024 earnings growth: 1,575%

Forward return on equity: 22%

Return on equity growth: 30%

Source: Goldman Sachs

10. Carnival

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (16)

Ticker: CCL

Market cap: $22.2B

P/E ratio: 28.4x

Sector: Consumer Discretionary

2024 earnings growth: N/A

Forward return on equity: 20%

Return on equity growth: 29%

Source: Goldman Sachs

11. First Solar

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (17)

Ticker: FSLR

Market cap: $24B

P/E ratio: 22.3x

Sector: Information Technology

2024 earnings growth: 76%

Forward return on equity: 21%

Return on equity growth: 26%

Source: Goldman Sachs

12. Tyson Foods

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (18)

Ticker: TSN

Market cap: $22B

P/E ratio: N/A

Sector: Consumer Staples

2024 earnings growth: 160%

Forward return on equity: 7%

Return on equity growth: 25%

Source: Goldman Sachs

13. Targa Resources

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (19)

Ticker: TRGP

Market cap: $33.2B

P/E ratio: 31.1x

Sector: Energy

2024 earnings growth: 51%

Forward return on equity: 53%

Return on equity growth: 24%

Source: Goldman Sachs

14. T-Mobile

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (20)

Ticker: TMUS

Market cap: $238.6B

P/E ratio: 25.8x

Sector: Communication Services

2024 earnings growth: 35%

Forward return on equity: 20%

Return on equity growth: 24%

Source: Goldman Sachs

15. Estee Lauder

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (21)

Ticker: EL

Market cap: $30.4B

P/E ratio: 92.2x

Sector: Consumer Staples

2024 earnings growth: 83%

Forward return on equity: 23%

Return on equity growth: 24%

Source: Goldman Sachs

16. Dominion Energy

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (22)

Ticker: D

Market cap: $49.6B

P/E ratio: 31.1x

Sector: Utilities

2024 earnings growth: 7%

Forward return on equity: 10%

Return on equity growth: 23%

Source: Goldman Sachs

17. Teradyne

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (23)

Ticker: TER

Market cap: $21.3B

P/E ratio: 44.1x

Sector: Information Technology

2024 earnings growth: 10%

Forward return on equity: 20%

Return on equity growth: 22%

Source: Goldman Sachs

18. Citigroup

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (24)

Ticker: C

Market cap: $112.7B

P/E ratio: 17.5x

Sector: Financials

2024 earnings growth: -5%

Forward return on equity: 6%

Return on equity growth: 22%

Source: Goldman Sachs

19. KeyCorp

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (25)

Ticker: KEY

Market cap: $15.4B

P/E ratio: 21.8x

Sector: Financials

2024 earnings growth: -2%

Forward return on equity: 10%

Return on equity growth: 22%

Source: Goldman Sachs

20. Blackstone

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (26)

Ticker: BX

Market cap: $186.4B

P/E ratio: 58.4x

Sector: Financials

2024 earnings growth: 17%

Forward return on equity: 53%

Return on equity growth: 19%

Source: Goldman Sachs

21. KKR

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (27)

Ticker: KKR

Market cap: $110.9B

P/E ratio: 31x

Sector: Financials

2024 earnings growth: 36%

Forward return on equity: 18%

Return on equity growth: 19%

Source: Goldman Sachs

22. Merck

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (28)

Ticker: MRK

Market cap: $298.6B

P/E ratio: 21.1x

Sector: Healthcare

2024 earnings growth: 438%

Forward return on equity: 40%

Return on equity growth: 18%

Source: Goldman Sachs

23. Analog Devices

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (29)

Ticker: ADI

Market cap: $111B

P/E ratio: 69.4x

Sector: Information Technology

2024 earnings growth: -32%

Forward return on equity: 11%

Return on equity growth: 17%

Source: Goldman Sachs

24. Corning

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (30)

Ticker: GLW

Market cap: $36.9B

P/E ratio: 89.6x

Sector: Information Technology

2024 earnings growth: 13%

Forward return on equity: 17%

Return on equity growth: 17%

Source: Goldman Sachs

25. Coterra Energy

25 increasingly efficient stocks with profitability heading into the Q3 earnings season: Goldman Sachs (31)

Ticker: CTRA

Market cap: $436M

P/E ratio: 32.7x

Sector: Energy

2024 earnings growth: -23%

Forward return on equity: 13%

Return on equity growth: 16%

Source: Goldman Sachs