Goldman Sachs combed through hundreds of earnings transcripts to arrive at the 4 themes S&P 500 companies embraced this quarter — and shared the dozens of stocks set to benefit from these thematic trends

  • Goldman Sachs' equity strategy team combed through hundreds of earnings transcripts this quarter to arrive at the four thematic trends echoed by S&P 500 companies. 
  • These themes are related to COVID-19, consumer demand trends, M&A and investing for growth, as well as environmental, social and governance investing. 
  • The team also shared the stocks of companies that are optimistic about benefiting from the various aspects of the four trends. 
  • Visit Business Insider's homepage for more stories.

While the nail-biting US elections have kept investors distracted and on edge for the past few weeks, a smashing third-quarter earnings season so far could be exactly the impetus to shift attention back to company fundamentals.

A tally by Goldman Sachs shows that on an equal-weighted basis, 68% of S&P 500 companies have beaten earnings expectations while 51% of them have beaten revenue expectations. Meanwhile, on a cap-weighted basis, 69% and 62% of the S&P companies have beaten their top-line and bottom-line expectations, respectively.

To find out about the key themes driving corporate decision-making going forward, Goldman's US equity strategy team combed through hundreds of earnings transcripts of S&P 500 companies this quarter and arrived at four thematic trends echoed by the managements of these companies. 

The four themes emerging out of the team's analysis are (1) COVID-19, (2) consumer demand trends, (3) mergers and acquisitions and investing for growth, (4) environmental, social, and governance investing. 

Led by chief US equity strategist David Kostin, the team also shared the dozens of stocks that are set to benefit from these trends as they play out. 

COVID-19 — vaccine distribution 

While Pfizer's Monday announcement about the efficacy of its vaccine marks a milestone in the global fight against the pandemic, it is the logistics and distribution of the vaccine that are top of mind for management this quarter.

"Many of the management discussions focused on planning efforts for vaccine distribution, which will require coordination across several sectors to successfully deliver certain COVID-19 vaccine candidates globally," said Kostin in a Friday research note. 

"Meanwhile, other companies focused on testing and tracing. Some firms focused their commentary on preparedness for a second wave of the virus with uncertainty and optimism," he added. "Several companies have also addressed the psychological dimension of the vaccine's effect on an economic rebound."

The companies that are optimistic about benefiting from the rising demand for vaccine distribution and logistics are Trane Technologies (TT), FedEx Corporation (FDX), United Airlines Holdings (UAL), Thermo Fisher Scientific (TMO), Johnson & Johnson (JNJ), Merck & Co. (MRK), and Pfizer (PFE). 

Consumer demand trends — stay-at-home trade

Consumer spending has improved significantly from its trough during the COVID peak, but company commentary this quarter suggested that the stay-at-home trade may still have more room to run. 

"Consumer demand showed signs of improvement across Consumer Discretionary, Information Technology, Transportation, and Autos," Kostin said in the note. "Unsurprisingly, company commentary indicated that demand for stay-at-home and pandemic-preparedness goods remained strong. "

The companies that are optimistic about their pandemic-preparedness and have seen strong stay-at-home demands from consumers are: Sherwin-Williams Company (SHW), 3M Company (MMM), Trane Technologies (TT), Newell Brands (NWL), Clorox (CLX), McCormick & Company (MKC), Under Armour (UAA), Amazon.com (AMZN) and Garmin (GRMN). 

M&A and investing for growth

In line with Goldman's recent forecast that investors will reward companies investing for growth as the economy improves in 2021, company managements have revolved their M&A discussions this quarter around investing for growth. 

"This quarter, several managements noted that M&A valuations did not drop in 1H as much as they would have expected given the economic contraction the market experienced in the same time period," said Kostin.

"Nonetheless, many spent Q2 and Q3 shoring up their balance sheets and reinforcing cash reserves in order to be well-positioned for opportunistic M&A in the coming quarters," he added. 

The companies that are directing cash to M&As and investing for growth are: Caterpillar (CAT), Tractor Supply Company (TSCO), C.H. Robinson Worldwide (CHRW), Xerox Holdings Corporation (XRX), Lockheed Martin Corporation (LMT), Equifax (EFX), Paychex (PAYX), Omnicom Group (OMC), Cummins (CMI), Boston Scientific Corporation (BSX), West Pharmaceutical Services (WST). 

ESG — A focus across sectors 

Even prior to a Biden presidency, ESG investing was becoming the next buzzword of the financial services industry, but an analysis of the earnings transcripts this quarter shows that it has become a focus across sectors. 

He explained: "Asset managers are witnessing significant demand for ESG and ESG-adjacent products, and various mutual funds and ETFs are proliferating in the space as a result."

"Thematically, climate, clean energy, and carbon neutrality are particularly top-of-mind," he added. "Investors are grappling with the lack of standardization in ESG data, both across ESG scores provided by ratings agencies and across data reported by corporates."

The companies that have seen increased investor focus on ESG products are: BlackRock (BLK), Invesco (IVZ), MSCI (MSCI), Morgan Stanley (MS), Moody's (MCO), State Street (STT). 

The companies paying close attention to ESG disclosure and data are: S&P Global (SPGI), Franklin Resources (BEN), Honeywell International (HON), Philip Morris International (PM), Devon Energy Corporation (DVN), DTE Energy Company (DTE), American Electric Power Company (AEP), and Tractor Supply Company (TSCO).

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