If you think the market’s record rally this year is feeding demand for companies with risky balance sheets splurging on everything from capital expenditure to share buybacks, Goldman Sachs said you are wrong.

Corporate America has ramped up its cash spending thanks to the corporate tax cut, but the spending isn’t making the companies more appealing to investors. In fact, they still prefer those with strong balance sheets, said Goldman’s chief U.S. equity strategist David Kostin.

“Firms boosted total cash spending by 25% to $2.8 trillion in 2018. However, investors have not rewarded most forms of cash spending during the past 12 months,” said Kostin in a note Friday. “Recent market performance indicates a clear investor preference for safe, high quality balance sheets rather than firms investing for growth, returning cash to shareholders, or paying down debt.”

Goldman created a strong balance sheet basket with 50 companies in the S&P 500 that screens high for working capital to assets, retained earnings to assets, operating income to assets, leverage ratio and sales to assets. The basket has outperformed a similar basket of weak balance sheet stocks by 15 percentage points since 2018.

The portfolio also scored a 22% return year to date, beating the S&P 500’s 17% gain and the weak balance sheet basket’s 20% return.

The constituents include Facebook, Chipotle Mexican Grill, Monster Beverage and Nvidia.

“After two years of steady outperformance, strong balance sheets now trade at an 83% Price to Earnings multiple premium (a 94th percentile reading since 1980) to weak balance sheets,” Kostin said.

Originally published at CNBC

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