The market is looking undeniably choppy right now but Goldman Sachs is staying upbeat about stocks to buy. “We see limited further downside,” David Kostin, chief U.S. equity strategist, said in a note on Oct. 15.
“Despite the recent selloff, equity fundamentals are strong and we remain constructive on the path of the S&P 500.” Indeed, the firm has a year-end S&P 500 price target of 2,850. Right now the market is at just 2,809.
With this bullish outlook in mind, which stocks stand out from the crowd? Here I dive into five stocks highlighted by the firm as “Conviction Buys.” I also include each stock’s price target, so you can get an idea of the kind of upside anticipated by the firm. Let’s take a closer at Goldman’s top stocks to buy now:
Alibaba Group Holding Ltd (NYSE:BABA) may be down 14% year-to-date, but the fact remains this is a killer stock. And the long-term picture is firmly intact.
“We remain impressed with Alibaba’s overall leverage to China consumption growth given its strategy, positioning, ability to build new businesses (such as new retail) and its execution,” Goldman Sachs’ Piyush Mubayi (Track Record & Rating) told clients. “We expect Alibaba to continue to invest for future growth on multiple fronts.”
These investments cover everything from retailing and digital advertising to local services and entertainment. As a result, Mubayi expects BABA is looking at a total addressable market (TAM) of ~RMB 80 trillion by 2020E. He reiterated his BABA buy rating earlier in the month, while ramping up his price target from $241 to $247. From current levels that means massive upside potential of 67%.
Already, Alibaba’s cloud business market share in China jumped to 46% last year, up from 30% in 2015. Meanwhile, Alibaba’s Ant Financial now boasts 640 million customers using at least two of its services.
“In our view, the continuous investment in cloud technology demonstrates Alibaba’s determination to solidify its leading position in the industry and take up more market share in the future,” he said. “We believe Ant Financial will continue to be the “enabler” of Alibaba’s New Retail strategy and help the company navigate the globalization road map.” Interested in BABA stock? Get a free BABA Stock Research Report.
Goldman Sachs has high hopes for this oil major. Top Goldman analyst Neil Mehta (Track Record & Rating) has just upgraded Chevron Corporation (NYSE:CVX) from “buy” to an even more bullish “Conviction Buy.” With shares down over 6%, he now sees a compelling entry point for this “FCF winner.”
Indeed, Chevron’s status as one of GS’ best stocks to buy comes with a $142 price target (21% upside potential). True — there are risks attached. Lack of IMO exposure in 2020, poor earnings execution, expiration on Asian product sharing contracts, cost over-runs at Tengiz and long-term capital inflation are all troubling for investors.
However, Mehta believes such concerns are mostly “overstated and are also more than priced into the stock.” He is focusing on “solid” production growth through 2020 thanks to Permian and Australia and better-than-anticipated downstream cash flow potential.
This comes with FCF yield at 8% in 2019 with Brent at $70 and “leverage to a relatively constructive Brent crude price environment” in 2018/2019.
Note that Chevron now appears to be a better bet than ConocoPhillips (NYSE:COP). Conoco, up 32% YTD, was recently downgraded to “hold” by Goldman Sachs. The as the firm now sees “more attractive relative upside elsewhere.” Get the CVX Stock Research Report.
Flailing drug stock Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) doesn’t have many supporters on the Street. Indeed, 70% of analysts hold neutral or negative recommendations on the stock. But it does have a rare bullish call from Goldman Sachs.
Jami Rubin (Track Record & Rating) has a “Conviction Buy” rating on Teva with a $30 price target. This Street-high figure suggests shares can soar 42% from current levels. She writes: “We can’t control for the volatility but if investors take a 12-month view, we see a meaningful upside to the stock.” In fact, over the last six months, shares are already up 18%.
“After two years of consistent earning misses and downward guidance revision following the Actavis acquisition, under Kare Schultz Teva has beaten and raised guidance twice so far this year (albeit more realistic low expectations)” the analyst noted. She adds: “Beats and the raises have been driven by better-than-expected defense of Copaxone.”
Meanwhile, the approval of Eli Lilly And Co’S (NYSE:LLY) rival migraine drug was “already expected and well understood.”
Bottom line: the market needs to wake up to a “flurry of positive news such as the approval of its CGRP Ajovy, gCialis with 180 days exclusivity, and gEpiPen not to mention the first positive Phase III study of Fasinumab … all of which are underappreciated in our view and underscore Teva’s near perfect execution since Kare Schultz became CEO in late 2017.” Get the TEVA Stock Research Report.
If you haven’t heard of Apollo Global Management LLC (NYSE:APO) before, this is a leading alternative asset management firm. The firm invests in corporate private equity, credit and distressed situations and real estate. Apollo, at current valuation levels, is now the only Alternative Manager to which the market still ascribes a negative value to future incentive earnings, says Goldman Sachs analyst Alexander Blostein (Track Record & Rating).
He just upgraded APO from “buy” to “Conviction Buy,” writing “the growth outlook for APO is outstanding across its entire platform, and we continue to recommend the stock.” This comes with a bullish $45 price target (42% upside potential).
Investment performance is strengthening, and its realization outlook is improving into 2019 and 2020 says Blostein.
Net-net “We like APO’s business model and think it will be among the secular winners in the new financial landscape as regulation and economic forces push more activity out of the regulated banking sector.” Get the APO Stock Research Report.
Goodbye Visa Inc (NYSE:V) and hello MasterCard Incorporated (NYSE:MA)! Goldman’s James Schneider (Track Record & Rating) has just removed Visa from the firm’s Conviction List. And in its place we now have Mastercard as one of the best stocks to buy. At the same time, Schneider also bumped up his MA price target to $260 from $230. He is now anticipating gains of 25% for the coming months.
So what’s behind this bullish sentiment? One is Europe, and two is the company’s fast-growing business-to-business (B2B) segment. Regulations in Europe seem to be “catalyzing market share gains from local processors” giving MA an advantage in a “significantly under-penetrated market.”
Meanwhile, B2B represents the “next growth horizon for the payments industry” with MA set to benefit from its “multi-faceted product approach.” He pictures B2B efforts accounting for nearly a fifth of Mastercard’s overall revenue in five years i.e. between $10 billion and $15 billion.
With these strong drivers in place, Schneider is predicting sustain mid-teens revenue growth and 20% earnings growth for the next five years. Get the MA Stock Research Report.
TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.