Investors are always on the lookout for a stock that primed to rise – and skill is measured by success. Goldman Sachs, the international investment bank, has achieved that success, by a combination of capital access, institutional savvy, and attracting the right people. The bank’s investment arm doesn’t just rely on current trends, they work to understand the markets and adjust strategies accordingly.
To wit, the bank is using new data analysis methods to choose potentially winning stocks. G-S financial experts have begun looking at revenue projection adjustments as leading indicators, and testing those predictions against actual performance.
The results have been interesting. Goldman’s hypothetical portfolio, using their new projections, showed an annualized gain of 7%. The experiment showed that there is a high potential benefit to crunching numbers and calibrating investment decisions based on real world data.
The banking giant sees several S&P 500 stock plays for investors to consider in coming months. Running each stock through the Stock Screener tool at TipRanks, we’ve confirmed that Goldman Sachs is in the majority on Wall Street in recommending these equities. Here’s what you need to know about them.
State Street Corporation (STT)
While not a household name, State Street (name for the famous street on Boston) is a fixture of the US financial sector. In fact, it can trace its company history back to 1792, and only US financial institution which is older is the Bank of New York. State Street is also one of the world’s largest asset managers, with over $2.5 trillion in assets under management, and an additional $31 trillion in its custody.
For Q3 2019, the most recent reported, the company showed a top line of $2.9 billion and EPS of $1.51. While both numbers were down year-over-year, they both beat the analysts’ forecasts – a good sign. Investors are clearly not worried by year-over-year declines, as the stock is up nearly 30% since the Q3 report was released.
Writing on STT for Goldman, 4-star analyst Alexander Blostein said, “We see the stock as a “self-help” story into 2020 as STT’s ongoing expense initiatives and significantly improving capital flexibility are likely to amplify benefits from stronger revenues conditions, boosting EPS growth well ahead of the Street’s current expectations. Our 2020/2021 EPS is $7.22/$8.18 or +12%/+16% above consensus." The analyst added, "Historically, STT has had one of the highest correlations in the group with EPS revisions (67% R-squared), and given our significantly above the Street’s EPS view (+14% on average), we think the stock has more room to run."
Blostein upgraded his firm’s stance on STT, bumping it to a Buy rating. His $95 price target suggests a robust 17% upside potential for the stock. (To watch Blostein’s track record, click here)
Overall, STT holds a Moderate Buy rating from the analyst consensus, based on 8 "buy," 3 "hold," and 1 "sell" ratings. Shares are selling for $80.79, and the average price target of $83.31 implies a decidedly modest upside. But, as Blostein’s comments indicate, there may be much better potential here than first meets the eye. It also should be noted that STT earns a 9 Smart Score on TipRanks. (See State Street’s stock analysis at TipRanks)
Humana, Inc. (HUM)
Humana is another fixture of the financial scene, this time of the health insurance industry. The company is a top provider of Medicare Advantage plans, with over 6 million members enrolled. Sales in the Medicare Advantage segment have pushed the company’s success in recent months.
Rising revenues and earnings are clear from the most recent quarterly release. In Q3 last year, HUM beat both the estimates and year-over-year numbers on revenues and EPS. The top-line number was an impressive $16.24 billion; on the bottom line, EPS came in at $5.03. The strong revenues reflected 2019 generally – the stock grew 32% last year, slightly outpacing the general markets.
Also positive for investors, Humana has been reliable about the dividend. At 55 cents per quarter, the payment is small, and the yield, at just 0.6%, is nothing to write home about, but the company has a 9-year history of growing the dividend payment. The dividend has been increased 3 times since 2016.
Goldman’s Stephen Tanal added HUM to the firm’s Conviction List, saying, “We are adding shares of Buy-rated HUM to the Conviction List given our expectation of meaningful upward estimate revisions to consensus estimates for 2021 and beyond that we expect will occur due to the recent repeal of the health insurer industry fee (HIF), signed into law by President Trump on 12/20/2019.” The analyst continued, "We hike our 2021 adjusted EPS estimate by ~10% to $24.10 from $21.95, capturing only the benefit associated with a smaller tax burden, which HUM sized at ~$2.15 per share at its March 2019 Investor Day."
Tanal’s Buy rating on the stock is backed by a $425 price target, implying an upside of 14%. (To watch Tanal’s track record, click here)
Humana stock’s recent gains have pushed the trading price right through the average price target, and analysts have not yet had time to adjust their sights. Tanal’s rating shows that there is likely still upside here. Wall Street appears to agree – HUM has a Moderate Buy consensus rating, with Buys outnumbering Holds buy 9 to 4. (See Humana’s stock analysis at TipRanks)
Citigroup, Inc. (C)
Citigroup is the third largest American banking firm, and part of the Big Four industry giants who set the tone for smaller players. With revenues of $72.8 billion in the 2018 calendar year, Citi is clearly doing well, and is on track to bring in higher revenues in 2019. Improvements in the bank’s currency and commodities trading division, as well as the corporate and investor clients, pushed C shares to a 12.8% gain in 2019.
While C underperformed the broader markets last year, it made up for that with an above-average 2.6% dividend yield. The annualized payment stands at $2.04 per share. Better yet, in the last three years C has increased the dividend payment from 16 cents quarterly to 51 cents.
Quarterly earnings are also steady. In Q3 2019, the top and bottom lines both beat of the forecasts, albeit modestly. Total revenues hit $18.6 billion, while EPS came in at $1.97. As mentioned above, the currency and commodity trading division is doing particularly well, and beat expectations by 4%.
Like Humana, Citigroup now sits on Goldman’s Conviction List, placed there by 4-star analyst Richard Ramsden. Ramsden opined, “The market is overly pessimistic on Citi's revenue growth inflection, targeted expense savings, and outlook for credit costs, given the improvement in the risk profile of its international loan book… Citi's path to higher returns is clearer than the market currently ascribes value to.”
Ramsden backed his Buy rating with an $88 price target, implying an upside of 10% from current levels. (To watch Ramsden’s track record, click here)
With 10 Buy ratings against just a single Hold, Citi get a Strong Buy from the analyst consensus. The stock currently trades at $79.45, and the average price target indicates an upside potential of 11%. (See Citigroup’s stock analysis at TipRanks)