Goldman Sachs rates a lot of stocks as “buy.”
But recently, the equity research team at Goldman compiled a list of stocks within the company’s coverage universe that have the most potential upside to their price targets. The list is long (about 40 stocks), and Goldman pegs all of them as having roughly 30% or more upside to their price target.
But combing through the list, I’m not a fan of all 40 stocks. Instead, I think about half of them are good buys here and now.
Which ones are they? Let’s take a deeper look.
Goldman Sachs Stock to Buy 1: Starbucks (SBUX)
The first stock on Goldman Sachs “buy” list that I like is Starbucks (NASDAQ:SBUX).
The global coffee house operator has been stung recently by slower growth and top executive departures, the combination of which has left investors unsure as to where Starbucks goes next. But there really isn’t a big lack of clarity in this growth narrative. Growth will be permanently slower going forward thanks to beefed up competition, but will remain positive because Starbucks remains the gold standard in retail coffee.
For the first time in three years, SBUX stock has fallen below $50. Below $50, SBUX stock is simply undervalued considering growth will remain healthy into the foreseeable future. As such, this looks like a compelling buy-the-dip situation.
Goldman Sachs Stock to Buy 2: Northrup Grumman (NOC)
Defense contractor Northrup Grumman (NYSE:NOC) has been knocked big recently thanks to trade war and tariff concerns. Valuation concerns have also been weighing on the stock recently.
But the fundamentals on NOC stock remain exceptionally favorable. Geopolitical tensions globally are only rising, from China-U.S. trade war tensions to the U.S. leaving the Iran nuclear deal. This rise in geopolitical tensions is catalyzing bigger government defense spend, highlighted by the U.S. Senate recently passing a massive $700 billion-plus defense policy bill.
Northrup Grumman wins in an environment when geopolitical tensions and defense spending are on the rise. Granted, NOC stock is somewhat expensive at 19 times forward earnings. But late last year, this stock was at nearly 24 times forward earnings. Thus, I expect NOC stock to bounce back as sentiment normalizes to match strong fundamentals.
Goldman Sachs Stock to Buy 3: Lam Research (LRCX)
Semiconductor stocks are widely seen as big losers of persistent U.S.-China trade war tensions. Put simply, the semiconductor market is heavily dependent on healthy U.S.-China trade relations, and when those go south, so do the growth prospects for semiconductor stocks.
Lam Research (NASDAQ:LRCX) is no exception. LRCX stock has dropped from $220 in March to below $180 today. But, this weakness will be short-lived. The fundamentals on LRCX remain strong thanks to the company’s exposure to multiple nascent secular growth markets with huge potential. Eventually, trade war tensions will pass, and LRCX stock will rise.
The most attractive thing about LRCX is that the stock trades at just 10 times forward earnings for what is seen as nearly 40% revenue growth this year. That just doesn’t make much sense and implies a favorable risk-reward profile on this stock at present levels.
Goldman Sachs Stock to Buy 4: Nvidia (NVDA)
The king of the high-growth semiconductor market, Nvidia (NASDAQ:NVDA), hasn’t been immune to trade war tensions.
NVDA stock, which has long been a staple for consistent gains, hasn’t really gone anywhere over the past several months. That is due to escalating trade war tensions. But, the underlying growth narrative is only strengthening, as NVDA remains king in critical high-growth markets like AI, VR/AR, automation and data centers.
Over time, near-term noise will fade into the background, and strong long-term fundamentals will once again take center stage. At that point in time, NVDA stock will resume its upward march higher.
Goldman Sachs Stock to Buy 5: Micron Technology (MU)
Much like Lam Research and NVIDIA, Micron Technology (NASDAQ:MU) has fallen victim to escalating U.S.-China trade war tensions. The chipmaker has seen its stock crumble from $60 to $50 over the past few weeks.
But right before the fall, MU reported robust quarterly numbers with 40% revenue growth and nearly 15 percentage points of operating margin expansion. Those are big growth numbers that imply that the MU secular growth narrative revolving around AI and data-centers remains as powerful as ever.
MU stock, which trades at less than 5 times forward earnings, isn’t priced for this powerful growth narrative to persist. But it will, and that will ultimately push MU stock considerably higher in a long-term window.
Goldman Sachs Stock to Buy 6: Caterpillar (CAT)
Source: Anthony via Flickr
While 2018 has been a confusing year for the stock market, it has been a rough one for industrial giant Caterpillar (NYSE:CAT). CAT stock is down over 10% year-to-date, versus a 4.5% gain for the S&P 500.
The culprit? Concerns related to a slowdown in industrial demand thanks to a topped-out global economy and those previously mentioned trade war tensions between the U.S. and China. But economic strength globally remains robust, and CAT shrugged off trade war tensions in Q1 to report a very healthy double-beat-and-raise quarter that had 30%-plus revenue growth.
Meanwhile, CAT stock is trading at just 13 times forward earnings, versus a five-year average forward multiple north of 18. Thus, the growth profile is strong, and the valuation is attractive. That makes CAT stock a buy here and now.
Goldman Sachs Stock to Buy 7: Deere & Company (DE)
Source: Ford8n via Flickr (Modified)
When it comes to the Deere & Company (NYSE:DE) bull thesis, copy and paste the Caterpillar bull thesis. Global economic strength remains robust. Trade war tensions are overblown. DE stock trades at a below-market and below-historical-average forward multiple.
Also, the global agriculture economy is booming right now. And that means everyone is buying Deere products. That is why revenues rose 29% last quarter and are up 27% fiscal year-to-date.
The near-term may be choppy for DE stock thanks to trade war tensions. But the fundamentals on this stock look really good, as favorable growth prospects are converging on a discounted valuation. That should ultimately lead to significant share price appreciation.
Goldman Sachs Stock to Buy 8: Norwegian Cruise Line Holdings (NCLH)
Source: Corey Balazowich via Flickr
It has been a tough year for cruise ship operators like Norwegian Cruise Line Holdings (NYSE:NCLH). A stronger dollar, higher fuel prices and more ships in service have weighed on investor sentiment, and NCLH stock is consequently down 12% year-to-date.
But those fears dragging on NCLH stock seem overblown. A stronger dollar will hurt international sales. Higher fuel prices will weigh on margins. More ships will create potential inventory headaches. But in context, these headwinds are small. The global consumer economy remains as strong as ever. There is a huge movement towards experiences over products, and that benefits NCLH. Plus, all those experience-oriented Instagram addicts are now aging into careers and salaries, and that money will likely find its way onto cruise ships en masse.
Thus, the tailwinds are stronger than the headwinds. NCLH stock, priced at under 10 times forward earnings, is far too cheap considering the health of the company’s growth narrative.
Goldman Sachs Stock to Buy 9: Royal Caribbean Cruises (RCL)
For the bull thesis on Royal Caribbean Cruises (NYSE:RCL), read above. Headwinds are overstated. Tailwinds are under-stated. Long-term, the shift towards an experience-driven economy will drive healthy results for cruise ship operators like RCL, regardless of near-term noise.
RCL stock is slightly more expensive than NCLH stock (12 times forward versus 10 times forward). But revenue growth over the next several years is expected to trend around 7%-10% per year, and that is more than enough to warrant an 11 times forward multiple.
Consequently, RCL stock looks like a strong buy at current levels.
Goldman Sachs Stock to Buy 10: Marriott International (MAR)
Much like cruise ship operators, hotel operators have also been relatively weak in 2018. One such hotel operator that has struggled is Marriott International (NASDAQ:MAR). MAR stock is down about 4% year-to-date.
These struggles won’t persist. Just as is the case with cruise ships, the shift towards an experience-driven economy will create long-term tailwinds for Marriott. Those long-term tailwinds will ultimately power healthy growth in a multiyear window.
One could argue that MAR stock is priced for big growth at this point. The stock does trade at 24 times forward earnings, which is a big multiple for this company. But the shift in consumer desires does create certain tailwinds that weren’t there before, and as such, MAR stock deserves its premium valuation.
Goldman Sachs Stock to Buy 11: Tyson Foods (TSN)
One stock that has been hit particularly hard by trade war concerns is Tyson Foods (NYSE:TSN). The present volatility in trade relations has made it difficult for management to deliver products and services to customers on a timely, organized and cost-efficient basis. Consequently, TSN stock is down 18% year-to-date.
But at current levels, one could easily argue that all these trade war headwinds are fully priced in. TSN stock now trades at under 10-times forward earnings, which is really cheap for this stock. Meanwhile, outside of the trade war issues, everything else is well in the TSN kingdom. The company reported record profitability through the first six months of 2018.
Consequently, further weakness in TSN stock should be viewed as a buying opportunity.
Goldman Sachs Stock to Buy 12: DowDuPont (DWDP)
Trade war fears strike again! Industrial giant DowDuPont (NYSE:DWDP) has struggled in 2018 thanks to trade war tensions, which have eroded the company’s near-term growth prospects. DWDP stock is down 7% year-to-date.
But DWDP is an industrial giant with stable growth prospects through its multifaceted, big-moat business model which spans from agriculture to plastics. Thus, this is the type of stock you want to buy when the valuation is right.
Right now, the valuation looks right. The current 14 times forward multiple is above average. But it also isn’t that big considering earnings growth projects to run around 15% to 25% over the next two years. Those are big growth rates. A 14 multiple isn’t a big multiple. Consequently, the risk-reward profile skews towards the upside.
Goldman Sachs Stock to Buy 13: Jacobs Engineering Group (JEC)
Industrial services provider Jacobs Engineering Group (NYSE:JEC) has made strong gains over the past year. But those gains have stalled out in 2018 thanks mostly due to concerns over the longevity of current results and broad economic meltdown fears.
Such concerns have brought JEC stock down to a 15 times forward multiple, which is below average for this stable growth company. But results last quarter were very strong, and pointed to continued strength in the company’s underlying growth narrative.
Thus, recent fears have pushed the stock price down to a point where it no longer matches the strong fundamentals. Eventually, sentiment will normalize, and the stock price will rebound.
Goldman Sachs Stock to Buy 14: Harris Corporation (HRS)
At its core, Harris Corporation (NYSE:HRS) is a big moat technology company with exposure to long-term tailwinds through defense, security, and environment monitoring modernization. That is why Harris Corp has won multiple contracts over the past several months, including ones with Japan, the Air Force, the Pentagon, India, and Miami.
As a big-moat business with strong growth prospects, HRS stock deserves a big multiple. But the current 18 times forward multiple on HRS stock is not a big multiple.
Consequently, HRS stock looks like it has more room to run, so long as the defense spending backdrop remains healthy.
Goldman Sachs Stock to Buy 15: BorgWarner (BWA)
BorgWarner (NYSE:BWA) designs propulsion solutions for combustion, hybrid and electric vehicles. As such, the company has broad exposure to the hybrid and electric vehicle markets, two markets which are projected to increase by a whole bunch over the next several years.
Because of this exposure to hyper-growth markets, management at BWA thinks that the company can grow revenues around 7% per year over the next several years. That level of revenue growth, coupled with some margin expansion, should fuel around 10%-15% earnings growth per year.
BWA stock trades at just 10 times forward earnings. On its face, that is rather cheap. Next to 10%-15% earnings growth, that is really cheap. Thus, BWA stock looks good from a long-term valuation perspective.
Goldman Sachs Stock to Buy 16: TransDigm Group (TDG)
The aerospace market is hot right now, mostly thanks to a shift in the consumer economy from product-oriented to experience-oriented. Also, there are defense and military tailwinds propping up the aerospace market right now.
Due to all these reasons, aerospace parts supplier TransDigm Group (NYSE:TDG) has been a big winner as of late. TDG stock is up 28% year-to-date.
But this is nothing new for TDG stock. This is a company which has an excellent track record of big growth (20% revenue CAGR since 1993 and 24% EBITDA CAGR since 1993) and an equally strong track record of stock price appreciation (26% trailing 10 year return CAGR for TDG stock).
Because TDG operates in a big-moat business with only improving fundamentals, this strong track record of big growth will persist into the foreseeable future.
Goldman Sachs Stock to Buy 17: International Paper (IP)
International Paper (NYSE:IP) does exactly what its name implies: the company manufacturers paper and packaging products.
This is a long-term stable business that goes through lumps in the near term. As such, this isn’t a stock to buy and hold forever. Rather, it is a stock to buy on big dips and sell on big rallies.
Right now, we are in one of those big dips. IP stock is trading at just 9 times forward earnings, which is about as cheap as this stock has been over the past five years. Yet, revenue growth is positive and margins are heading higher. Consequently, the valuation is presently at a disconnect with the fundamentals, and that is creating an opportunity for willing dip buyers.
Goldman Sachs Stock to Buy 18: WestRock Co (WRK)
Source: Irekia via Flickr
The bull thesis on WestRock Co (NYSE:WRK) mirrors the bull thesis on IP. Both companies operate in the same space, and both are big-moat companies with a secular demand backdrop.
Much like IP, the valuation of WRK stock is near multiyear lows thanks to over-capacity concerns. But such concerns seem largely overdone in a multiyear window, and the present valuation trough looks like a buy-the-dip opportunity.
Longer term, WRK stock should perform well thanks to the big moat and secular demand aspects of its business.
Goldman Sachs Stock to Buy 19: Charles Schwab (SCHW)
Everything is going well for Charles Schwab (NYSE:SCHW) at the present moment. Total client assets are up. Revenues are up. Profits are up. The company’s marketing campaigns are working. Interest rates are rising.
All is well in the SCHW kingdom.
Yet, SCHW stock only trades at 21 times forward earnings, which is actually a discount to the five-year average forward multiple of 23. Considering the long-term outlook for SCHW is quite favorable with interest rates rising, sentiment on SCHW stock should normalize higher and the forward multiple should revert to 23 in the near future.
Goldman Sachs Stock to Buy 20: Citizens Financial Group (CFG)
The bull thesis on Citizens Financial Group (NYSE:CFG) is one part favorable macroeconomic conditions for banks (healthy economy, higher rates, lots of spending, so on and so forth) and one part citizens investing big into the future.
The second part of the bull thesis is more interesting. Citizens just recently launched a direct-to-consumer digital bank, yet another step forward for this bank as it attempts to modernize itself to be more relevant to millennial consumers who don’t like banks all that much.
The valuation on CFG stock remains highly reasonable at under 1 times price-to-book. Thus, so long as the macroeconomic financial environment remains favorable and CFG continues to invest into technology, this stock should perform well.
As of this writing, Luke Lango was long SBUX, NOC, LRCX, NVDA, MU, NCLH, RCL, BWA and TDG.
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