The stock market has rebounded swiftly over the past three weeks, with the S&P 500 rallying 27% from its March 23 low on the back of optimism that the novel coronavirus pandemic is starting to plateau and even fade across Europe and the U.S.
In response to this big market rebound and the coronavirus curve “flattening,” Goldman Sachs has put together a list of stocks to buy if the pandemic continues to fade and the economy starts to recover.
These are stocks which the analyst team at Goldman expects to recover quickly once the macroeconomic environment stabilizes. Consequently, they are top stocks to buy if you believe an economic recovery is around the corner.
In no particular, the top 5 stocks to buy for a potential economic recovery are:
- Caterpillar (NYSE:CAT)
- Chipotle (NYSE:CMG)
- Regeneron (NASDAQ:REGN)
- Salesforce (NYSE:CRM)
- Uber (NYSE:UBER)
Top Stocks to Buy for an Economic Recovery: Caterpillar (CAT)
What Goldman Sachs Thinks: Goldman Sachs likes Caterpillar’s 4.3% dividend yield. They also believe that rising technology content in industrial and manufacturing equipment creates multi-year revenue tailwinds for Caterpillar’s business.
All together, Goldman thinks that the long-term bull thesis on CAT stock is quite compelling, and that an economic recovery will once again shine a favorable light on this long-term bull thesis.
What I Think: As goes capital spending, so goes the industrial economy, and so goes Caterpillar’s business. Today, capital spending is depressed because economic activity has come to a standstill. But, companies are sitting on record high cash levels, with borrowing and spending costs as cheap as they’ve been, ever.
So, once the virus passes and economic activity normalizes, big businesses have ample ammunition to significantly re-accelerate capital spending, the likes of which should power a rebound in the industrial economy and CAT stock.
What Goldman Sachs Thinks: Goldman Sachs appreciates Chipotle’s robust digital and delivery infrastructure and capabilities.
The analyst team believes that these advantages will: 1) help the company weather the coronavirus storm through enhanced delivery, and 2) consolidate share if/when restaurant spending trends recover.
What I Think: I agree entirely with Goldman Sachs. Chipotle is “ahead of the curve” in the restaurant industry when it comes to its digital footprint and omni-channel capabilities. Such advantages do position the company for better-than-expected growth in Q2, and robust growth once the economy normalizes.
Simultaneously, it’s important to note that CMG stock has fallen to valuation levels (3.2-times forward sales) which are cheap by historical standards for this stock, and under-appreciate the company’s long-term profit growth potential.
What Goldman Sachs Thinks: Alongside many other analysts and investors, Goldman is excited about the potential for Regeneron’s coronavirus treatments.
At present, Regeneron is advancing two treatments for Covid-19. Both treatments are going through trials right now, and at record speed. One of the treatments, Kevzara, could have results by the end of the month. If those results are positive, REGN stock could rally.
What I Think: I’d be wary of REGN stock. This stock has been one of the best-performing stocks in the market in 2020. Shares are up 36% year-to-date, and currently trade at nosebleed valuation levels for a stock of Regeneron’s ilk (27-times forward earnings).
The meteoric rise can be chalked up to hype surrounding Regeneron’s ability to treat Covid-19. Such hype is built on hope, and that hope could be dashed by negative trial results. Consequently, I’d tread carefully with REGN stock.
What Goldman Sachs Thinks: Goldman Sachs like Salesforce in an economic recovery, because such a recovery should spark reinvigorated IT spending.
Goldman sees Salesforce as an out-sized winner of reinvigorated IT spend, given the company’s formidable and broad suite of cloud-hosted enterprise software products. The firm has a 12 month forward price target on CRM stock of $178, about 20% higher than where shares trade today.
What I Think: CRM stock will be a winner, regardless if the economy recovers or not, because enterprises will increasingly spend money on their cloud migrations over the next few quarters, regardless if the economy improves.
The coronavirus pandemic was a not-so-subtle reminder that every enterprise needs to have virtualized and digitized software offerings, which allow for remote work. Salesforce’s offers some of the best enterprise software products in the market. As such, even if the economy remains sluggish for the next few quarters, enterprises that can, will spend money with Salesforce.
Of course, if the economy materially recovers, IT spending trends will rebound, and companies will spend more money with Salesforce. In that event, CRM stock won’t just head higher. It will surge higher from here.
What Goldman Sachs Thinks: Goldman Sachs likes two things about Uber. First, the bank believes that increased demand for the company’s food delivery service, Uber Eats, will help offset slowdown in travel and commuting.
Second, Goldman thinks UBER stock is way undervalued. The bank’s 12 month forward price target on the stock is $49, almost double the stock’s current price.
What I Think: I like UBER stock here. There seems to be some notion out there that the ride-sharing market is forever dead. This notion is wrong. Consumers enjoy ride-sharing because it’s convenient and saves money. For those same reasons, once the coronavirus pandemic passes, the ride-sharing market will rebound.
So will UBER stock.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long UBER.