The “Rule of 10” for Deciphering the Next Stock Market Champions
Identifying growth stocks with the highest potential for upside can be a challenging task, especially with the ever-changing dynamics of the stock market. However, if you are interested in uncovering the future winners from the best minds on Wall Street, Goldman Sachs Group, Inc. (GS) has a simple yet effective approach that they refer to as the “Rule of 10.” This rule focuses on identifying companies that have the ability to consistently increase their revenues by at least 10%, making them potential champions in the stock market.
Goldman Sachs devised the “Rule of 10” as a method to identify the next generation of stocks that are poised for significant growth in value. According to this rule, companies must demonstrate a consistent pattern of revenue growth of at least 10% and show the potential to sustain this growth in the future in order to meet the criteria.
In early 2025, 21 S&P 500 companies met Goldman’s income requirements and were deemed potential candidates for significant growth. This select group of companies, including some of the fastest-growing corporations in the market, were identified as future contenders for outperforming the S&P 500 index.
It is important to note that while screening for stocks based on the “Rule of 10” criteria can be a valuable tool in identifying potential winners, it should not be the sole factor guiding investment decisions. Other factors such as market trends, industry analysis, and overall economic conditions should also be considered when making investment choices.
The Rule of 10: How It Works
To better understand the Rule of 10, it is essential to analyze the success stories of today’s largest winners in the market, known as the “Magnificent Seven.” These companies, including Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms, Inc., Microsoft Corporation, NVIDIA Corp., and Tesla, Inc., have demonstrated significant growth and popularity, making them ideal models for identifying potential outperformers in the stock market.
Companies that aim to meet the criteria of the Rule of 10 must satisfy the following requirements:
– Be listed on the S&P 500 Index.
– Show a minimum of 10% revenue growth in each of the last two years.
– Have an anticipated revenue growth of at least 10% in the current year, the next fiscal year, and the fiscal year following that.
Stocks Approaching the Rule of 10 Criteria
By projecting sales growth of at least 10% in the coming years and screening the S&P 500 for companies with a history of 10% revenue growth in the past years, Goldman Sachs has identified a group of stocks that meet the Rule of 10 criteria. As of January 28, 2025, these stocks have shown promising potential for future growth and are worthy of consideration for investment opportunities.
Finding Rule of 10 Stocks
As market conditions change and companies revise their revenue growth estimates, the stocks that pass the Rule of 10 test may vary over time. By inputting the specified criteria into a screening tool, investors can identify stocks that Goldman Sachs believes have the potential to outperform the market in the future.
While compiling the necessary information for each S&P 500 stock may require additional time and effort, it is also a viable option for investors seeking a more comprehensive analysis of potential investment opportunities.
Overall, Goldman Sachs’s Rule of 10 aims to identify the next wave of S&P 500 stocks that are poised for significant capital appreciation. This screening tool serves as a starting point for investors, providing insights into potential market leaders and offering valuable information for consideration in investment decision-making.
In conclusion, it is important to remember that the Rule of 10 is just one factor to consider when making investment decisions. It is essential to conduct thorough research, consider various factors, and seek professional advice before making investment choices to ensure the best possible outcomes for your financial goals.