Investors love companies with huge cash piles — but Goldman Sachs has uncovered an 'unusual' strategy to profit from those racking up debt

Beyond the intuitive reason that their cash reserves are higher, these so-called quality stocks are in vogue because they've outperformed others splurging cash over the past year., when interest rates were close to zero, companies with the weakest balance sheets were able to tap the debt markets to raise capital. But that source of easy money was gradually closed off as interest rates rose, raising the allure of companies with more cash discipline.

And yet, Kostin's team found a more specific performance trend that runs counter to the marketwide preference for quality: companies racking up more debt are outperforming those reducing their debt."Debt reducers" have underperformed"debt issuers" by 10 percentage points over the past year — 3% versus 13%, Kostin said.

This meant that Goldman's baskets of stocks skewed towards companies with lower valuations, Kostin said."Our long/short value factor has lagged by 12% during the past year as investors have continued to reward growth stocks ," he added.

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