Goldman says interest rate expense is biggest threat to profitability, but these stocks are immune


Goldman Sachs says that the longer-term interest rate regime is a threat to profitability for companies, but certain stocks are less susceptible to higher borrowing costs. In a client note, David Kostin said that the increased interest expense was a major headwind for aggregate ROE. Federal Reserve raised interest rates to their highest level since 2001 and forecasts another hike in 2018. The stock market took a beating last month, as investors lowered their expectations of higher rates lasting longer. The S & P 500 ended September with a 4.9% decline, its worst monthly performance since 2023. Kostin stated that if rates rise and stay high for a longer period of time, the increased borrowing costs will disincentivize businesses to increase their leverage. Goldman expects investors will reward stocks that are less susceptible to rate increases, as they provide stability in the face of economic uncertainty. The Wall Street firm screened S & P 500 stocks for low leverage, high coverage of interest and low EBITDA variability. Goldman screened the S & P 500 for stocks with low leverage, high interest coverage and low EBITDA variability. The screen showed a few tech stocks, such as Cisco, Cadence Design Systems, and Cognizant Technology Solutions. According to Goldman, the consumer name Costco also has a lower vulnerability to rate increases.