Investment bank Goldman Sachs has been analyzing the market performance, and has a mixed outlook for the year – not necessarily bad news for the long term, but an acknowledgement that we’re not completely certain what the economic cycle has in store. David Kostin, Goldman Sachs' chief U.S. equity strategist, predicts that the market has not found its true bottom yet, and has to meet three conditions before it can. Kostin notes that the current peak-to-trough time, of just 23 trading days, is an order of magnitude faster than the median – which stands at 17 months. But there is hope on the horizon: Kostin also believes that the S&P can finish out the year at 3,000.
The three conditions Kostin sees as essential to a true market bottom are: A slow in the viral spread in the US, allowing investors to understand the actual economic impact; evidence that policy actions by the Federal Reserve and Congress are showing success in limiting the damage; and a bottoming out in both investor sentiment and positioning.
Once the bottom is reached, Kostin sees a quick rebound in the offing. With that in mind, Goldman's stock analysts remind investors that compelling opportunities can still be found. Using TipRanks database, we were able to pinpoint 3 stocks that are Buy-rated and backed by the analysts from Goldman Sachs as well as the rest of the Street. To top it all off, each stands to see over 35% gains in the next year.
Columbia Property Trust (CXP)
We’ll start in commercial real estate, with an REIT focused on urban office properties. Columbia Property Trust holds some 6.8 million square feet of office space in New York, San Francisco, and Washington DC, with smaller investments in Los Angeles and Boston. Three of these cities – NY, LA, and San Fran – are hard-hit by coronavirus or the lockdown policies implemented to halt its spread. That should hurt a commercial landlord, but Columbia also has over 6 years remaining on its average lease, and those long remaining terms, along with a high occupancy rate of 97%, help to insulate the company from immediate difficulties.
A solid end to 2019 also put Columbia in a fair position to meet the current downturn. The company met the earnings forecast, showing 34 cents per share, while the $68.73 million revenues beat the estimates by 3.1%. The earnings were more than enough to keep up the 21-cent quarterly dividend. The payout ratio, at 61%, is low for the sector – but also shows that the company can easily afford its dividend. At 7.6%, the yield is excellent, far ahead of both the average yield on the S&P 500 and the yield on Treasury notes.
5-star analyst Richard Skidmore, covering CXP for Goldman Sachs, sees the stock with a clear near-term path to weather the current storm. Skidmore writes, “CXP has approximately 2% of its portfolio expiring in 2020, so we see limited downside risk resulting from the current environment. We expect growth to accelerate in 2021/2022 driven by expiration renewals… From a liquidity perspective, CXP has $314mn available under its revolving credit facility, so we believe CXP has adequate liquidity to fund its operations…”
Skidmore backs his Buy rating on the stock with a $16 price target, indicative of a 44% upside potential. (To watch Skidmore’s track record, click here)
Overall, CXP shares have a Strong Buy from the analyst consensus, based on 3 Buy ratings and 1 Hold. The stock is selling for a low $11.10, and the $21.25 average price target suggest room for 91% upside growth in the coming 12 months. (See Columbia stock analysis on TipRanks)
Celanese Corporation (CE)
Next up, we’ll switch to the chemical industry, where Texas-based Celanese holds a global niche. The company produces acetyl products, a vital molecular compound with applications in a wide range of industries. Celanese is also the largest producer of vinyl acetate monomer, a vital component of industrial polymers and adhesives.
The coronavirus pandemic, by forcing workplace closures to halt the viral spread, has halted operations and put serious pressure on the company. This comes on the heels of a disappointing fourth quarter, in which demand fell and earnings and revenues both missed the estimates. EPS, at $1.99 cents, was down 16% year-over-year, and revenues declined 15% over the same period.
On a positive note, Celanese boasted $179 million in free cash flow for the quarter, well ahead of the $144 million in capital expenditure. The company was easily able to maintain its 62-cent quarterly dividend, with a moderate payout ratio of 31%. At $2.48, the annualized payment gives a yield of 3.6%.
Goldman Sachs 5-star analyst Robert Koort has been covering CE shares, and sees them in an advantageous position right now – enough that he upgraded his stance on the stock from Neutral to Buy. His $95 price target implies an upside potential of 38%. (To watch Koort’s track record, click here)
Defending his position on CE, Koort writes, “…the company has shown an ability to maintain meaningful free cash generation during previous economic downturns. Additionally, a signiﬁcantly improved and less capital intensive business mix, and strategic acquisitions have driven structurally higher cash generation capabilities through the cycle, as evidenced by steep increases and relative stability in FCF generation over the last 7 years.”
It appears consensus sentiment matches well with Koort's bullish stance, with TipRanks analytics showing CE as a Buy. Based on 17 analysts tracked in the last 3 months, 10 rate the stock a "buy," while 7 suggest "hold." The 12-month average price target stands at $104.36, marking a 52% upside from where the stock is currently trading. (See Celanese stock analysis on TipRanks.)
Univar Solutions (UNVR)
Last on our list is another player in the chemical industry. Univar is an ingredients distributor, providing an enormous range of chemicals, solvents, and additives needed by industrial chemical manufacturers in completing their formulations. The company bills itself as the one-stop-shop in supplying the major chemical manufacturers, and its $9.3 billion in 2019 revenue, up 8% year-over-year, underlines the importance of that niche.
Q4 revenues were in-line with the 2019 total. At $2.2 billion, the quarterly total showed 9% year-over-year growth. EPS, however, was down; the 29 cents reported fell 4 cents from the year-ago number. Like Celanese above, however, Univar finished 2019 with plenty of cash on hand. The company reported some $330.3 million available, a 172% increase.
This is another stock reviewed by GS’s Robert Koort. Like CE above, Koort gives UNVR an upgrade, raising his outlook to a Buy. Koort gives the stock a $15 price target, showing confidence in a 51% upside for the coming year. (To watch Koort’s track record, click here)
Commenting on Univar, Koort wrote, “When looking at prior periods of economic weakness, distributors have broadly proven to perform relatively in-line with the market… we believe the stock has underperformed driven by several factors. First, during the last quarterly earnings call UNVR provided disappointing FCF guidance… We see this dynamic improving as the FCF guidance for 2020 assumed a back-end loaded improvement in sales. Should the macro environment falter… this could result in improving FCF...”
UNVR shares are heavily discounted after the market’s recent slide, selling for just $9.89 now. The average price target is $24.88, and implies a powerful growth potential: 152% for the coming year. The stock gets a Moderate Buy rating from the analyst consensus, based on a 3 to 2 split of Buys versus Holds. (See Univar’s stock analysis at TipRanks)
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