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James Faris
- The remarkably robust market rally during the first half of the year has carried into July.
- Goldman Sachs is increasingly optimistic about US stocks, but upside may be limited.
- Here are 14 stocks that can grow their earnings by 25% or more in 2025.
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Wall Street has significantly underestimated US stocks this year, but Goldman Sachs strategists are still skeptical that the S&P 500 can keep climbing the so-called "wall of worry."
Late last year, most top investment firms predicted that stocks would log modest gains in 2024 after an impressive 24.2% surge in 2023. The most bullish year-end target for the S&P 500 was 5,100, which represented solid upside of about 7% from where it ended the year.
Those predictions look paltry in hindsight, as the S&P 500 finished the first half of the year up 14.5% at 5,460. The index tacked on another 2% in the first week of July as investors scramble to add exposure to high-flying US equities.
Bulls are getting bolder, but risks remain
In response, several major firms have boosted their year-end S&P 500 targets in recent months. Strategy chiefs at Morgan Stanley, BMO Capital Markets, and Deutsche Bank lifted their targets in mid-May, while Oppenheimer's John Stoltzfus did so for the second time this year on Sunday, writing that the index would reach 5,900 instead of 5,500 as the economy remains resilient.
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Goldman Sachs is also increasingly bullish on US stocks, though only to an extent. The firm's top US equity strategist, David Kostin, raised his S&P 500 target to 5,600 from 5,200 in mid-June, though that new forecast still implies that the index will be flat in the next six months.
The strategy chief's cautious optimism stems from a belief that the S&P 500's earnings multiple will inch down from historically high levels, even as its components post 8% earnings growth.
A cheaper valuation could rock stocks, as earnings multiple expansion has made up nearly half of the S&P 500's return this year — a bigger driver than dividends or improving earnings results, Kostin wrote in an early July note. Unless valuations rise further, he thinks stocks will stagnate.
Another reason for concern, in Kostin's view, is that the market is unusually top-heavy.
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Goldman Sachs found that six mega-cap growth stocks — Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia — accounted for 62% of the S&P 500's gain in 2024. The equal-weight S&P 500, which gives the same weight to each stock in the index, only rose 4.1% through June.
As for sectors, the spread between leaders and laggards is also rather jarring. Technology and communication services stocks are up 31% to 33% this year, while the other nine sectors are trailing the broader market. However, only the real estate sector is in negative territory.
"Investors rewarded AI-exposed pockets of the market, with utilities rising by 9% and a basket of AI infrastructure stocks rising by 32%," Kostin wrote in the note.
14 stocks set to grow earnings 25% or more in 2025
If the market's earnings multiple falls as feared in the second half of the year, investors will put a larger premium on profit growth. And as next year nears, future earnings will come into focus.
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Goldman Sachs recently shared earnings growth projections for the 100 biggest stocks in the S&P 500, both for this year and next. Only 14 companies in that cohort are expected to expand earnings by 25% or more in 2025, down from 17 expected to hit that mark in 2024.
Below are those 14 large-cap stocks expected to grow earnings by at least 25% next year, along with each one's ticker, market capitalization, and 2024 and 2025 earnings growth estimates.
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1. Uber Technologies
Ticker: UBER
Market cap: $148.9B
2024 earnings growth: 2%
2025 earnings growth: 146%
Source: Goldman Sachs
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2. Intel
Ticker: INTC
Market cap: $143.8B
2024 earnings growth: 6%
2025 earnings growth: 78%
Source: Goldman Sachs
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3. Advanced Micro Devices
Ticker: AMD
Market cap: $287.3B
2024 earnings growth: 32%
2025 earnings growth: 59%
Source: Goldman Sachs
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4. Eli Lilly
Ticker: LLY
Market cap: $873.2B
2024 earnings growth: 118%
2025 earnings growth: 40%
Source: Goldman Sachs
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5. AnalogDevices
Ticker: ADI
Market cap: $115.7B
2024 earnings growth: -31%
2025 earnings growth: 37%
Source: Goldman Sachs
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6. Charles Schwab
Ticker: SCHW
Market cap: $134.1B
2024 earnings growth: 4%
2025 earnings growth: 33%
Source: Goldman Sachs
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7. Tesla
Ticker: TSLA
Market cap: $790B
2024 earnings growth: -19%
2025 earnings growth: 33%
Source: Goldman Sachs
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8. Nvidia
Ticker: NVDA
Market cap: $3,170T
2024 earnings growth: 108%
2025 earnings growth: 30%
Source: Goldman Sachs
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9. KKR
Ticker: KKR
Market cap: $93.1B
2024 earnings growth: 38%
2025 earnings growth: 30%
Source: Goldman Sachs
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10. Lam Research
Ticker: LRCX
Market cap: $143.9B
2024 earnings growth: 16%
2025 earnings growth: 29%
Source: Goldman Sachs
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11. Amazon
Ticker: AMZN
Market cap: $2,070T
2024 earnings growth: 58%
2025 earnings growth: 27%
Source: Goldman Sachs
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12. Blackstone
Ticker: BX
Market cap: $146.2B
2024 earnings growth: 22%
2025 earnings growth: 26%
Source: Goldman Sachs
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13. Citigroup
Ticker: C
Market cap: $123.2B
2024 earnings growth: -5%
2025 earnings growth: 26%
Source: Goldman Sachs
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14. Broadcom
Ticker: AVGO
Market cap: $807B
2024 earnings growth: 18%
2025 earnings growth: 25%
Source: Goldman Sachs
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