Investing in companies with a solid track record of margin expansion may be one of the best ways to protect a portfolio from the uncertainties ahead in 2023, according to Goldman Sachs. After a difficult 2022 that saw one of the worst years for stocks since 2008 , investors are grappling with elevated interest rates and a Federal Reserve intent on bringing down inflation even if it risks tipping the economy into a recession. One strategy to play this confusing backdrop is by owning companies with resilient margins and avoiding those with vulnerable margins should selling, general and administrative expenses tick up again, David Kostin, the bank’s chief U.S. equity strategist said in a Friday note to clients. Generally speaking, stocks with resilient margins are better able to weather times of economic weakness while also returning value to shareholders. Against this backdrop, Goldman Sachs outlined a slew of Russell 1000 stocks that have grown margins in 2022 and are slated to expand once again in the new year. The median company on the list expanded margins by 1.16% in 2022, while the median Russell 1000 stock saw its margins contract 0.27%. Going forward, the included stocks on average should grow margins by 0.59% this year, while the median Russell 1000 stock should boost margins by only 0.31%. Air Lease , up roughly 11% this year, is expected to see the biggest margin growth in 2023. The aircraft leasing company is expected to grow margins by 386 basis points this year after expanding by 116 basis points through the third quarter of last year. A basis point is equal to 0.01%. Biotech name Illumina and online travel behemoth Booking Holdings are two other solid margin expanders that made the cut, with shares up more than 2% and about 21% this year, respectively. Margins for Illumina are expected to expand by 2.15% in 2023, and Goldman anticipates they will rise 1.91% for Booking Holdings. Booking saw its margins expand by 573 basis points through the third quarter, the largest among the stocks included in the screen. BKNG YTD mountain Booking Holding shares so far this year. Several financial and payment stocks made the cut, including Mastercard . The company is slated to expand its margins by 69 basis points this year after a 2.54% expansion in 2022. Eli Lilly and Latin American airline carrier Copa Holdings were some of the other margin expanders included. — CNBC’s Michael Bloom contributed reporting
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