10 stocks that make Goldman’s conviction list

Equities
Investments

Goldman Sachs’ list of conviction stocks has just been updated. Here are some choice selections for you to keep an eye on.

Goldman Sachs conviction stocks

The conviction list is Goldman’s selection of equities it believes will overperform this year. All of the stocks that make the grade hold a buy rating.

As ever with these things, the companies Goldman highlights come from a mixture of different sectors. A slew of new equities have been added to the list for 2021, from tech, energy and beyond.

Let’s take a look at some standout picks.

Energy stocks

Houston, Texas-based NRG Energy made the list in June and currently holds a $53 target price. The bank cites elevated cash flows in 2022 and a compelling valuation as reasons why the gas & electricity supplier is a conviction stock. NRG stock could jump 25% in the coming months, according to Goldman.

Elsewhere, Targa Resources, another North American energy supplier, cemented its place on Goldman’s conviction list in March. In an investment note, the bank dubbed Targa “one of the most compelling companies in our midstream energy coverage.”

Targa’s “significant” buyback programme and double dividend attracted Goldman’s eye, suggesting the energy supplier’s profits and cash flows are on the up.

Another midstream firm, Michigan’s DTE Energy, also makes the list, with Goldman Sachs liking the oil transporter/processor’s decarbonisation efforts.

FMCG & consumer-focussed stocks

Switching to a more consumer-bent, a number of companies are fresh additions to the conviction list.

Let’s start with Chipotle. The Mexican fast-food joint has been called a “clear digital leader” by the bank. An easy-to-use app, strong online presence, new menu items, and a solid loyalty programme all underpin Chipotle’s fundamentals. Development of new drive-thru “Chipotlanes” also help the stock’s favourable rating.

Sportswear retailer Lululemon gained conviction status in July. Post-pandemic growth opportunities help the stock on its way, as well as the nature of its direct-to-customer online business which cuts out the middleman.

Constellation Brands, which owns Corona and Modelo beers, was a February conviction addition. When added to the list, Goldman praised Constellation’s strong fundamentals.

“We believe Constellation Brands remains one of the best growth stories across the U.S. Staples universe and is advantageously levered to the most attractive opportunities in alcoholic beverages – premium import beer, hard seltzers, and premium wines and spirits,” the bank stated in an investment note.

Technology stocks

Goldman joins Jeffries in signalling a number of different tech equities that could perform well for investors.

“Microsoft stands out very uniquely in the technology world given its strong presence across all layers of the cloud stack including applications platforms and infrastructure,” a Goldman investment note said.

With the bank believing the Seattle computing giant will post a strong fourth quarter, Microsoft makes its conviction list.

Salesforce also makes it. Goldman was attracted to Salesforce’s commitments to aiding worldwide digital transformation – something which greatly picked up during the pandemic – naming the brand as one of the standouts in the $1 trillion global cloud technical account management market.

Financial equities

Finally, let’s look at two financial stocks Goldman likes.

The first is investment firm Evercore Partners. Goldman believes Evercore is about to benefit greatly from upcoming M&A activity and continued profits from fees generated through advising special-purpose acquisition vehicles (SPACs).

“We see potential upside surprise vs. consensus on capital distributions, due to the stronger earnings we forecast, coupled with a robust cash position,” Goldman said.

Fifth Third Bank could also benefit from rising interest rates once the Fed ups its current historically-low cash rate.

“We believe it will see top quartile performance when rates rise and it leverages the benefits of medium term cost cuts,” said Goldman.

Companies pull guidance as COVID-19 chaos reigns

Equities

A slew of leading US companies have pulled their guidance today, blaming the uncertainty caused by the coronavirus outbreak. What else do the latest earnings reports tell us about the stocks?

Chipotle

Chipotle beat earnings estimates by $0.18 after reporting earnings per share of $3.08 for the first quarter. Revenue clocked in around expectations at $1.41 billion, as a surge in online orders helped to soften the blow from the closure of around 100 restaurants in locations such as shopping centres.

Despite pulling its guidance, the company has announced plans to help it adapt to the changing conditions, which include improving its mobile app, partnering with more delivery companies (and making delivery free), and shifting ad spend from live sports events to online, such as streaming platforms.

Executives have also said that diminished competition for real estate is helping the company secure better sites for future restaurants, even as it delays work on some of the 165-odd locations it had planned to open this year.

Shares are up around 10%.

AT&T

Shares in AT&T are drifting lower today after the company’s latest earnings report. Not only did the company pull its guidance, it also missed EPS expectations by a cent and reported revenue of $42.8 billion against forecasts of $44.2 billion.

The first quarter saw a surge in new phone subscribers, despite over 40% of its retail stores having to shut. Premium TV subscribers slumped by 897,000. The company estimates that the pandemic has hit EBITDA by $435 million.

Although guidance is out of the window, the company stated that it has enough free cash flow to make its debt payments and to pay dividends.

Quest Diagnostics

Quest Diagnostics has jumped 4% today after the company said that it had begun testing in its medical labs for COVID-19 antibodies, using tests from Abbot Laboratories and PerkinElmer. Earnings came in 5 cents above expectations, but revenue was 3.6% lower at $1.82 billion. The company expects to be able to perform over 200,000 antibody tests per day by the middle of next month. While guidance has been pulled, dividends are unaffected.

Kimberly-Clark

Earnings for Kimberly-Clark came in well-above expectations at $2.13 per share, versus consensus expectations of $1.97. Revenue was up as well, topping $5 billion against expectations of $4.86 billion, as consumers stocking up on essential items pushed organic sales up 11%.

The stock has slipped around 1% lower today.

LYFT

Lyft earnings aren’t due until May 6th, but the company has already followed its larger rival Uber in pulling its 2020 guidance. The company had been aiming to finally turn profitable this year, but the coronavirus pandemic has crushed those forecasts. Driver bookings are down around 75% in recent weeks.

‘The pandemic began to have a negative impact on business trends, including ride volumes, in mid-March, which has continued into April,’ Lyft said yesterday.

The May 6th earnings will detail the measures the company is taking to safeguard its financial position and reduce costs, while supporting both drivers and riders.

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