Stable Growers: The New Gold Standard for Investors

As political uncertainty and slowing economic growth cast a shadow over the market, investors are seeking refuge in stable growth companies. Goldman Sachs has identified a basket of 50 stocks that have historically shown consistent earnings growth and a tight consensus among analysts regarding future EPS growth. These "Stable Growers" have outperformed volatile growth stocks by a significant margin over the past two years, making them an attractive investment opportunity.

One of the key factors driving the rotation to stable growth companies is the historical EBITDA growth stability of these stocks. Companies like Home Depot (HD) and Walmart (WMT) have shown consistent EBITDA growth over the past decade, providing investors with a sense of security and reliability in an uncertain market environment. Additionally, the tight consensus among analysts regarding future EPS growth for these companies indicates a high level of confidence in their growth prospects.

Another factor driving the rotation to stable growth companies is the macroeconomic uncertainty that investors face. As political uncertainty and slowing economic growth increase, investors seek refuge in stable growth companies that tend to perform better in challenging macro conditions. This trend is reflected in the widening valuation gap between stable growth companies and the broader market, with investors assigning a premium to stocks with historical EBITDA growth stability.

To capitalize on this trend and build a more resilient portfolio, investors should consider tilting their portfolios towards stable growth companies. By increasing exposure to stable growth stocks, investors can reduce the overall volatility of their portfolios while still participating in market growth. Additionally, investors should focus on sectors with stable growth opportunities, such as consumer staples, healthcare, and utilities, and diversify within stable growth stocks to spread risk.

In conclusion, the rotation to stable growth companies is driven by historical EBITDA growth stability, macroeconomic uncertainty, and the widening valuation gap between stable growth companies and the broader market. Investors can capitalize on this trend by tilting their portfolios towards stable growth companies, focusing on sectors with stable growth opportunities, and diversifying within the stable growth category. By doing so, investors can build a more resilient portfolio that is better positioned to weather market volatility and capitalize on the rotation to stable growth companies.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long HD, WMT, and other stable growth stocks.