In The Midst Of The Banking Crisis, Goldman's Strong Balance Sheet Basket Is Outperforming The Market.

Taking advantage of the ongoing bank crisis that is whipsawing the broader market, stocks with strong balance sheets are gaining popularity.

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An analysis of performance published Friday by analyst David Kostin shows that Goldman Sachs' basket of 50 S&P 500 companies with strong balance sheets has outperformed the basket of companies with weak balance sheets by six percentage points since March 8, the date Silicon Valley Bank began its downward spiral.

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In the same analysis, it was observed that stocks in companies with strong balance sheets have outperformed stocks in companies with weak balance sheets by 11 percentage points since the beginning of the year.

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A weighted sum of five ratios, referred to as the Altman Z-score, is used by Goldman Sachs to determine which S&P 500 stocks have the strongest balance sheets: working capital to assets, retained earnings to assets, operating income to assets, leverage ratio, and sales ratio. As the name suggests, it was created in order to determine the probability of a company going bankrupt.

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As a result of the recent turmoil in the financial sector, the baskets, which span eight sectors, have had little effect on their performance. Here are 10 stocks with strong balance sheets in the outperforming group:

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• Meta

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• Tesla

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• Monster

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• Valero

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• Intuitive Surgical

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• Copart

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• Monolithic Power

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• NVIDIA

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• Steel Dynamics

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• VRTX

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Two growth names in the basket, Meta and Tesla, have been rallying significantly over the past week — both of which finished last week up nearly 9% and 4%, respectively. At the Fed's policy meeting this week, investors have hoped that the banking crisis will not prevent them from hiking their interest rates by a half percentage point. In general, technology and growth stocks tend to do better during periods where interest rates are lower because they are considered particularly interest rate sensitive.

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With the growing interest in artificial intelligence, Nvidia, another technology stock in the basket, has also been on the rise this year. By comparison, the stock more than doubled its share price in 2020 and 2021, as it returned to notable annual gains after a 50% drop in 2022. This marked the return to noteworthy annual gains for the chipmaker.

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The basket was recently expanded by Steel Dynamics, a metal producer outside the technological sector, with a score of 6.7. A company's guidance last week was to earn between $3.78 and $3.82 a share for the first quarter, more than half a dollar higher than the consensus estimate of analysts based on FactSet of $3.23.

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