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What's on Goldman's List of Small-Cap Stocks

Goldman thinks small-cap stocks will trail large-cap in 2022, but it still sees examples of small-caps that are attractive.
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Goldman Sachs equity strategists think the Russell 2000 index of small-cap stocks will continue to trail the S&P 500 large-cap index this year.

But they cite several small-cap stocks they like, including Crocs  (CROX) - Get Free Report shoes and audio products company Sonos  (SONO) - Get Free Report.

“Looking ahead, tightening financial conditions, slowing growth, and a flattening yield curve should all pressure Russell 2000 returns relative to the S&P 500,” Goldman Sachs strategists, led by David Kostin, wrote in a commentary.

They came up with their list by screening the Russell 2000 for companies with over $1 billion in market-cap, consensus 2023 sales growth above 10%, consensus net profit margins above 10%, and below-average enterprise value-to-sales multiples.

“During the last 20 years, the Russell 2000 generated a return very similar to that of the S&P 500," it reads. "However, the small-cap index has underperformed on average during periods where either the yield curve was flattening, economic growth was elevated and declining, or financial conditions were tightening.”

“All three of these dynamics describe our economists’ 2022 outlook,” the strategists said.

But for those who want to buy small-cap stocks, advice was more measured.

“We believe investors should focus on stocks with a combination of strong growth, high profit margins, and undemanding valuations,” they said.

Stocks that made the roster include Marathon Digital Holdings  (MARA) - Get Free Report, a digital currency mining company; Murphy Oil  (MUR) - Get Free Report; Federated Hermes, a money management company  (FHI) - Get Free Report; Herc Holdings  (HRI) - Get Free Report, an equipment rental company; and Tivity Health  (TVTY) - Get Free Report, a fitness and nutrition company.