Not Every FANG Made Goldman’s Super- Awesome New Growth Stock Team

Goldman spent what looks like a shit load of time scouring the globe for “secular growth stocks.”

And the reason you should care about this is because when things are going ok, but not great, growth should outperform value. As far as Goldman is concerned, that’s what you’re about to see in terms of the global economy – good, but not great. To wit:

But finding companies that can sustain fast top line grow is hard. They’re a rare breed – like conservatives with working brains. How rare are they, you ask? Well, as Goldman notes, “of the 1,514 companies under GS equity research coverage with historical data available, there are just 41 companies that have grown sales by 10% or more for each of the past 10 years.”

As you can see, the lion’s share of these companies are in China and the U.S. Which isn’t surprising.

But you don’t have to meet that criteria to land yourself on the bank’s list of “secular growth stocks.” All you have to do is have “actual sales growth of at least 10% in 2015 and 2016.” Actually, no. That’s not all you have to do to get on Goldman’s list. Here are the criteria:

In addition to those criteria, Goldman is going to go ahead and “restrict companies based on market capitalization (greater than $2 billion), valuation (excluding the top quintile of EV/Sales for a given region), and liquidity (greater than $10 million average daily trading volume).”

Well out of some 2,300 stocks covered by the bank globally, only 50 made the final list and based on the valuation constraint, you’ve probably surmised that at least of couple of the FANGs didn’t make it in. Here’s Goldman:

Several prominent growth stocks do not meet our secular growth at a reasonable price criteria (“secular GARP”). In the US, perennial mutual fund and hedge fund favorite positions Facebook and Netflix both meet our secular growth criteria, but trade at 14x and 8x EV/Sales multiples, respectively, ranking in the 90th percentile of S&P 500 stocks. Microsoft does not meet the Rule of Ten growth criteria because its sales grew by just 2% in 2015 and 2016. In Asia, Alibaba and Tencent are not included in our list because of their elevated EV/Sales ratios (17x and 15x, respectively).Baidu is also excluded from our secular growth screen given it had just 6% sales growth in 2016.