By Ian Salisbury
America's most vulnerable consumers are facing a host of problems, from tariffs to government assistance cuts. But their financial position may be stronger than it looks, according to a new Goldman Sachs report. That could be a bullish signal for stocks that rely on their spending -- from Monster Beverage to Capital One.
Subprime consumers -- in general those with credit scores of 660 or below -- represent nearly a third of the U.S. population. It's the cohort that was hit hardest by the recent spike in inflation, since most of these Americans' paychecks go to daily necessities and few benefit from rising stock prices.
Still their financial health position may be healthier than some on Wall Street have worried, according to a Goldman Sachs report on Tuesday. "Our call is that subprime consumers are, and will remain, resilient, with positive spending growth and improving delinquency trends despite economic uncertainty," wrote the team of a dozen research analysts.
Supreme consumers' strength could have positive knock-on effects for a number of stocks, according to Goldman, whose picks include consumer names like DollarTree and Philip Morris International as well as financials like Fair Issac, Capital One, and Affirm.
What's behind Goldman's thesis? Subprime consumers face a host of problems, the researchers acknowledge. While the inflation rate has slowed, tariffs could provide another bump to prices, while proposed cuts to SNAP, aka food stamps, and Medicaid could further sap their spending power.
Still Goldman argues, cuts to those federal programs could be offset by new benefits in other areas, such as proposals to exempt tip income, overtime pay and auto loan interest from income taxes.
Meanwhile, household balance sheets remain relatively healthy. Debt service payments amounted to just 11.3% of disposable income in the fourth quarter, according to the St. Louis Federal Reserve. That's higher than in the recent past, when investors benefited from Covid-ear stimulus checks, but lower than any other point since the late 1990s.
In addition, credit delinquencies, which spiked earlier this year alarming many lenders, appear to have peaked. Subprime credit card and auto delinquencies have been improving year-over-year since February, according to Goldman Sachs, and personal loans since mid 2024.
Here is Goldman Sachs' list of stocks that could shine if subprime consumers show continued strength.
Name: Fair Issac
Ticker: FICO
Forward price-to-earnings: 56
What Goldman says: "FICO earns transactional revenue from FICO credit score pulls during credit originations, creating revenue growth upside."
Name: DollarTree
Ticker: DLTR
Forward price-to-earnings: 17
What Goldman says: " Dollar Tree will benefit from subprime consumers' search for value in an uncertain macro environment."
Name: Philip Morris International
Ticker: PM
Forward price-to-earnings: 23
What Goldman says: "PM is trading at a meaningful discount to its growth staples peers despite its much faster top- & bottom-line growth."
Name: Monster Beverage
Ticker: MNST
Forward price-to-earnings: 32
What Goldman says: "Energy drinks remain an affordable luxury."
Name: Affirm
Ticker: AFRM
Forward price-to-earnings: 78
What Goldman says: "A best-in-class BNPL player in a market that's growing." (BNPL is buy now, pay later.)
Name: Block
Ticker: XYZ
Forward price-to-earnings: 21
What Goldman says: "We expect a reacceleration in Block's Cash App gross profit to be fueled by a bounce back in cash card debit spending."
Name: Capital One
Ticker: COF
Forward price-to-earnings: 12
What Goldman says: Capital One " is benefiting from improving credit trends in both its card and auto business."
Name: Synchrony Financial
Ticker: SYF
Forward price-to-earnings: 8
What Goldman says: "$Synchrony Financial(SYF-B)$, which has 28% of its loans to customers with FICO score below 660, will benefit from stable to improving subprime credit trends."
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 25, 2025 16:09 ET (20:09 GMT)
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