The jury is still out on what 2019 will bring for the stock market. But in any case, it’s best to be prepared. Diversify your portfolio with stocks that can surge even if the worst-case scenario materializes. Yep, I am talking about a recession. That’s because many financial experts are now warning that at some point, at some time, growth will start to slow.
Billionaire hedge fund investor Ray Dalio of Bridgewater Associates, for instance, told CNBC that he sees a “significant risk” for a recession in 2020.
Luckily Goldman Sachs has put its analysts to work. The firm has just released a report of the stocks it believes can outperform in a recession. Its strategy is simple: find stocks with exploding margins. All the stocks covered below have something in common: their margin growth is expected to exceed 100 basis points this year.
After all, margins normally get constrained in a late-cycle environment, which means you can make money by identifying the exceptions. So with that in mind, here are seven of the most compelling stocks from Goldman Sachs’ report. I used TipRanks to dive further into the stocks and get an idea of just how far analysts believe these stocks can go:
The world’s largest chemicals company DowDuPoint Inc (NYSE:DWDP) isn’t just a top stock for Goldman Sachs. DWDP also scores a rare “Top Pick” rating from RBC Capital.
“We see a re-rating opportunity from ~7.5x to ~10x as DWDP delivers on synergies and splits into three (and ultimately more) entities,” says RBC Capital’s Arun Viswanathan (Track Record & Ratings). Dow’s three-way split will see it return to its key expertise — basic chemicals production.
And Viswanathan believes the company is on track to deliver a whopping $3.6 billion of cost synergies and potential for $1 billion of revenue synergies. What does this mean? Shares are poised to move higher.
Indeed, the analyst has a $72 price target on the stock, indicating 27% upside from current share prices. Overall, the stock comes with a Moderate Buy Street consensus and an average price target of $75 (33% upside potential). Interested in DowDuPoint stock? Get a free DWDP Stock Research Report.
Streaming giant Netflix (NASDAQ:NFLX) may not be the first stock you think of as recession-proof. Indeed, some analysts believe the stock looks very much over-valued. Nonetheless, as Goldman Sachs points out, NFLX has an extremely impressive expected 2019 margin expansion of 235 basis points.
In fact, Goldman Sachs’ Heath Terry (Track Record & Ratings) has a buy rating on NFLX with a bullish $450 price target. That has recently been ramped up from $420 previously. With prices currently at $326 this means we are talking about shares surging 37% from current levels.
Terry — an analyst with a notably high-ranking — believes that the company’s content investment yield implies increasing returns.
“As Netflix subscriber adds continue to exceed expectations and it approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform,” the analyst writes.
And with a strong Q4 earnings report now in the bag, Netflix scores a “Moderate Buy” consensus from the Street. Earnings results revealed that Global Paid Sub Growth continues to shoot higher.
“This is growth defined, in our view,” concluded RBC Capital’s Mark Mahaney. He now has a $480 price target for 49% upside potential. Get the NFLX Stock Research Report.
Water stocks are staging a resurgence. I have spoken about Primo Water Corp (NASDAQ:PRMW) before, but here Goldman Sachs highlights a different water stock. This stock is currently trading at bargain levels and demonstrating robust demand levels.
Xylem Inc (NYSE:XYL) does business in more than 150 countries. This U.S. water giant enables customers worldwide to transport and efficiently use water in public commercial, agricultural and industrial settings.
“We would remain buyers of XYL into 2019, appreciating the attractive water sector backdrop (sustainable/defensive growth prospects) [and] XYL’s advantaged competitive position (large installed base plus technology leadership),” cheers Oppenheimer’s Bryan Blair (Track Record & Ratings). Plus XYL has capital deployment optionality.
In fact, Blair goes so far to claim that XYL remains uniquely positioned for earnings-per-share outgrowth going forward.
With his long-term thesis solidly intact, the analyst reiterates his $80 price target on XYL. From current levels that means upside potential of over 16%.
Taking a step back, the overall consensus is Moderate Buy with a $77 average analyst price target. Get the XYL Stock Research Report.
Vulcan Materials (VMC)
With 100% Street support right now, analysts are in agreement when it comes to Vulcan Materials Company (NYSE:VMC). And what do they agree on? This is a stock to Buy now. Six analysts have published back-to-back buy ratings on VMC. That’s with a $126 average price target (27% upside potential).
Vulcan Materials Company is an Alabama corporation and the nation’s largest producer of construction aggregates: primarily crushed stone, sand and gravel. All of that is good news because aggregates stand to outperform in a later-cycle environment and in inflationary environments.
These analysts expect demand strength to continue. That’s thanks to increased government funding from both the federal level (FAST-Act) and State level, which supports higher levels of public infrastructure spending.
“We anticipate that improvements in pricing and margin trends will follow a recent aggregates demand strength acceleration,” writes RBC Capital’s Michael Dahl (Track Record & Ratings). His $125 price target is basically in line with the Street average of $126 and translates into juicy upside potential of over 25%. Get the VMC Stock Research Report.
Leading global online payments platform PayPal Holdings (NASDAQ:PYPL) is evolving into a robust financial services ecosystem.
Although PYPL shares experienced their fair share of volatility in 2018 (due to eBay (NASDAQ:EBAY), the Analyst Day/long-term guidance and Venmo monetization uncertainty) 2019 is primed to be a top-notch year.
“PayPal is still in the early stages of its transformation from a button / online checkout company to a global payments platform with a sizable addressable market opportunity,” writes five-star Stifel analyst Scott Devitt (Track Record & Ratings).
He believes the record holiday season for eCommerce in the U.S. and continued momentum in its core Paypal and Venmo businesses sets the company up for another solid quarter in 4Q.
“Competition across the digital payments landscape continues to intensify, though we believe PayPal’s leadership position (ex-China) in a sector with favorable tailwinds should support further share outperformance over the next 12 months,” says Devitt.
He has a $108 price target on the payments stock (20% upside potential).
And this support is well deserved. Right now, PayPal has a “Strong Buy” rating from the Street. Out of all 10 analysts covering the stock, nine are bullish. Get the PYPL Stock Research Report.
Morgan Stanley just downgraded Expedia Inc (NASDAQ:EXPE) from buy to hold.
According to Morgan Stanley’s Brian Nowak (Track Record & Ratings) the online travel industry is entering a period of slowing growth. And therefore increased investment.
Not so fast though. EXPE still has its fair share of supporters. Most notably, Goldman Sachs has just upgraded the stock from hold to buy.
The stock’s “relatively low trading multiple means it is likely to outperform in a tougher market environment for growth stocks,” analyst Heath Terry told clients. As a result, he ramped up his price target from $125 to $140 (20% upside).
“While we’re still generally cautious on the travel space given tight supply and healthy underlying demand, we believe TripAdvisor and Booking’s recent ad spend rationalization puts Expedia in a better relative position,” he explains.
Indeed, recent history shows that Expedia was able to drive bookings growth acceleration alongside leverage in ad spend.
Overall, EXPE comes with a Moderate Buy consensus and $145 average price target. Get the EXPE Stock Research Report.
This groundbreaking 3D design company makes software for people who make things. This includes software for architects, animators, constructors and engineers.
Saving the best to last? According to Goldman Sachs, Autodesk’s (NASDAQ:ADSK) estimated 2019 margin growth comes in at a jaw-dropping 1,389 basis points.
Meanwhile, Oppenheimer’s Koji Ikeda (Track Record & Ratings) selects Autodesk as his top stock pick right now. That’s in a Dec-Jan report released by Oppenheimer detailing each analyst’s favorite stock.
Ikeda justifies his choice here: “We are attracted to Autodesk’s dominant market positioning, rapid innovation, and strong execution.” He has a $160 price target on ADSK.
What’s more, he sees a long growth runway ahead. “We believe the business is well positioned in a large but lightly penetrated construction industry that is yearning for next-generation technologies, like Autodesk’s, to help digitize the industry.” This should act as a pillar for Autodesk’s next leg of growth beyond the fiscal year 2020 says the analyst.
As for the overall consensus, ADSK has a Moderate Buy rating. The average price target stands at $150. Get the ADSK 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.