Inside Goldman Sachs’s ‘Secular Growth’ Tech Favorites



Goldman Sachs’s technology stocks

In the first two parts of this series, we discussed how Goldman Sachs (GS) is now advising investors to focus on “secular growth” technology stocks. Goldman Sachs’s David Kostin believes that a structural shift in demand appears to be a major driver for technology stocks.

Kostin believes that if top-line revenue growth will improve by 4%, the earnings growth of stocks like Google (GOOGL), Apple (AAPL), and Amazon.com (AMZN) could improve by as much as 5%–10%.

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Technology giant Google (GOOGL) has been reporting strong earnings growth, beating analysts’ expectations in most recent quarters, and its revenue growth is also showing gradual improvement. Google’s advertisement revenue is adding more value to its overall revenue growth, and the stock has provided strong returns on a year-to-date basis, gaining 24% so far this year as of June 8, 2017.

Meanwhile, billionaire investor and Omega Chairman and CEO (chief executive officer) Leon Cooperman believes that Google’s valuation looks cheap. According to Cooperman, the company has an enormous positive cash flow, which is a great advantage for companies in the current market (SPY) (QQQ) environment—particularly for expanding business or buying other businesses.


Apple (AAPL) has also provided strong revenue growth in recent quarters. In fiscal 2Q17, the company posted revenue growth of $52.9 billion, while in 2Q16, it reported revenue growth of $50.6 billion. On a yearly basis, its revenue growth improved by 5%. The improvement in its services revenue also added value to its overall revenue. (Check out Market Realist’s series Apple Proudly Reports ‘Strong March Quarter’ to learn more.)

David Kostin believes that the revenue growth of these companies is going to improve dramatically in coming quarters, which could, in turn, help such companies provide strong earnings growth and reward investors.

For more, you might be interested in reading Market Realist’s Marc Faber: Is There a Bubble in the US Stock Market?


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