Goldman Sachs has named eight global stocks of companies that will become profitable this year and beat the broader market. In a new research report, the investment bank found that companies that transition from unprofitable to profitable during a market recovery typically outperform the broader market. According to Goldman, this phenomenon was observed in 2001 and 2008, with outperformance above 50% in each instance. “[The research] assess the performance of companies during the Tech Bubble and GFC periods, and note that companies able to successfully transition from being unprofitable to profitable typically outperformed sharply,” said the team led by Jessica Binder Graham, co-head of European equity research for Goldman Sachs Research, in a note to clients on Feb. 28. Goldman Sachs also said stocks of European companies undergoing this transition are already showing signs of outperformance against the Stoxx 600 by 6%. The following table highlights three buy-rated stocks where net income margins were negative in 2021 and 2022, and which Goldman analysts expect will go green this year and the next. The stocks include Finnish state-owned energy company Fortum , which had its earnings battered thanks to the energy crisis in Europe over the past two years. Pan-European classifieds operator Adevinta and Swiss solar power engineering firm Meyer Burger are also expected to turn profitable this year. That trend is especially true in the early days of a stock market rebound and applies not only to net income or earnings per share metric but also to the free cash flow (FCF) metric, the bank said. The table below shows five buy-rated stocks where FCF margins were negative over the past two years but are forecast to become positive in 2023 or 2024 by the bank’s analysts. Additionally, these stocks are forecast to improve their FCF margins over the same period. Chemicals companies Lanxess and Clariant , Swiss pharma firm Lonza , French utility company Engie and U.S.-listed Swiss apparel retailer On Holding were loss-makers and are now expected to turn a profit, according to Goldman. However, Goldman cautioned that the bank isn’t certain the market has reached its bottom, and the trend applies only in a market recovery scenario. “While we cannot definitively say the market bottom is behind us, there are signs that this theme is already being traded,” the analysts added. — CNBC’s Michael Bloom contributed to this report.
