Top domestic and international companies
Goldman’s new stock picks range from health to finance and include both domestic and international companies.
Here is a list of ten of its buy-rated picks:
Oak Street Health, a primary care provider in the United States, is “highly differentiated,” according to Goldman, which began covering the stock on September 7.
“The company has demonstrated an ability to scale while preserving clinical and financial outcomes, and we see this continuing within the $325B+ market opportunity,” the bank said, adding that its 12-month price target has a potential 50.3 percent upside.
On September 16, Goldman began covering Chinese online medical provider Alibaba Health, predicting “relatively fast revenue growth” over the next three years. It noted upcoming drug regulations in China, but stated that the company’s size would help it grow in the long run, and estimated a 42.1 percent.
According to a Sept. 16 research note, Oncoclinicas, a Brazilian oncology company, has a 68.8 percent potential upside.
Glenmark Life Sciences, an Indian pharmaceutical ingredients company, is a pick as a “leading” developer in the sector, which has a market value of more than $140 billion, according to Goldman. In a Sept. 13 note, it estimated the stock has a 28.4 percent potential upside to its 12-month price target.
Jefferies is winding down its merchant bank, and Goldman expects it to make higher returns once it is completed.
Piper Sandler is also liked by the bank for its “evolution away from asset management and trading to a high-returning, capital-light investment bank,” which the market has not yet priced in.
Goldman has also begun to cover two Kazakhstan banks, Kaspi and Halyk Bank. Goldman said in a Sept. 8 research note that Kaspi will benefit from an increase in e-commerce. Goldman said in the same note that Halyk, Kazakhstan’s largest bank, is “highly capital-generative”.
Materials and infrastructure
According to Goldman in a September 17 note, MasTec, a U.S. engineering group, works in several long-term growth markets, with specialists well-suited to dealing with complex infrastructure projects. The bank assigned a 39.6 percent potential upside to the stock’s 12-month price target.
Constellium, a steel company based in Paris, is a pick for Goldman, which began covering the stock on September 9. The bank values its exposure to the packaging and auto industries, as well as its consistent growth and “multiple expansion potential.”
The gas crisis
Gas prices have risen due to a combination of higher demand and lower supply, as a result of factors such as increased use of air conditioning in some parts of the United States, less gas in storage for the winter months, and increased demand from Asia as countries open up following Covid-19 lockdowns.
Natural gas prices have risen more than 250 percent since January, causing a crisis in countries such as the United Kingdom, with several smaller energy firms on the verge of bankruptcy.
Last week, Spain announced tax cuts to help consumers deal with rising energy bills, as well as a 2.6 billion euro ($3 billion) “claw back” from utilities that benefit from higher gas prices, including those focused on renewables.
“Buy Orsted (Overweight) and Iberdrola (Overweight) on weakness: We recognize that Iberdrola’s recent gas clawback will have a negative impact on earnings in 2021 and 2022… triggering EPS downgrades. “However, this appears to be well priced in given Iberdrola’s market cap,” the analysts wrote. Earnings per share (EPS) is a metric used by investors to assess the worth of a stock.
“We see RWE (Overweight), EDF (Overweight), and Engie (Overweight) as our preferred names to play the strength in power prices, with limited risk of contagion from political intervention,” the analysts added. According to the analysts, RWE has a potential 35.4 percent upside to Morgan Stanley’s price target. EDF has a 58.1 percent share, while Engie has a 44.5 percent share.
Stocks to buy during government shutdown
To avoid a government shutdown, Congress must pass a funding plan by September 30. The House passed legislation Tuesday that would temporarily fund the government and suspend the debt limit, but Republicans are threatening to filibuster it in the Senate.
“With a potential government shutdown and debt limit showdown looming, investors are growing concerned about market spillovers,” said David Kostin of Goldman Sachs in a note.
According to Goldman’s analysis, previous US government shutdowns or debt ceiling showdowns had no consistent impact on the S&P500.
“Rather, the underlying macroenvironment has been more important for equity performance,” said Kostin.
The basket includes the stocks of 83 companies that generate at least 20% of their revenue from government spending.
Consider the top eight names in the basket in terms of government revenue exposure.
According to Goldman, industrial and health care stocks account for more than 80% of the total basket.
Many of the industrial companies on the list are involved in aerospace and defense spending.
Huntington Ingalls Industries, which ranks first on Goldman’s list, is a major military shipbuilding firm. Mercury Systems develops hardware and software for the aerospace and defense industries. Lockheed Martin also works in the fields of aerospace, weapons, defense, security, and technology. According to Goldman’s analysis, these top three names generate 99 percent of revenue from government spending.
Booz Allen Hamilton is also ranked first on Goldman’s list. According to Goldman, the government accounts for 96 percent of the consulting firm’s revenue.
Oak Street Health is the only health-care brand in the top eight. Medicare recipients and adults over the age of 65 are served by the primary care provider. According to Goldman, Oak Street Health receives 98 percent of its revenue from government spending.
Goldman has reduced its global auto production forecast for calendar years 2021 and 2022 to 75 million and 85 million, respectively. Previously, the company forecasted 83 million units in 2021 and 90 million in 2022.
Goldman’s Mark Delaney said in a note Sunday that the firm is “reflecting company commentary that supply/demand will likely be very tight for at least a few more quarters, and the fact that even one missing part can stop production.”
Goldman attributes the supply issues to Covid, which has a negative impact on semiconductor operations, as well as other material procurement challenges and logistics and shipping bottlenecks.
Despite these challenges in the auto industry, Goldman sees some winners.
“Several of our Buy rated stocks, in our opinion, strike a good balance of having strong financial models (e.g., attractive margins and/or [free cash flow]) that we believe can provide resiliency in a difficult supply chain environment,” Delaney said.
Tesla was singled out by Goldman as a “industry leader that is well positioned for growth.” The firm has a buy rating on Tesla stock and a price target of $875, implying a 13% increase from the stock’s Friday closing price.
General Motors is also viewed as a buy by the company. GM is one of the “more cyclical stocks that should benefit from an industry recovery in production/sales but still have opportunities to benefit from EVs and/or [advanced driver-assistance systems],” according to Goldman. The bank has set a price target of $59 on the stock, which is 13% higher than GM’s share price as of Friday’s close.
However, Goldman believes that supply chain issues could have a particularly negative impact on its sell-rated stocks.
Lordstown Motors’ stock was downgraded to a sell from a neutral rating by the firm. The firm maintained its $5 price target for the stock, implying a 34% drop from Friday’s close.
“Our price target reflects what we believe will be a competitive, albeit growing, market for EVs… as well as Lordstown Motors’ operational challenges.” However, the current incremental supply chain issues that we believe the auto industry as a whole is experiencing (e.g., rising material costs and limited parts supply) may have an impact on the company’s ramp cadence/magnitude over the next year, according to Delaney.
Lordstown Motors shares are down 62.26 percent in 2021.