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- Goldman Sachs says relative valuations are now in line with historic norms.
- The firm is looking for quality companies that trade at attractive multiples.
- Goldman analysts laid out 15 under-the-radar, “quality” stock picks in a note to clients on Friday.
- See more stories on Insider’s business page.
The growth-to-value rotation and so-called reflation trade have been the dominant market narratives in the past few months.
Groups of investors looking to take advantage of the economic reopening piled into value-oriented stocks that had been long abandoned in favor of high-flying growth names and tech shares.
Reflation trade believers put their money to work in energy and financial stocks, among others, hoping to profit from what some experts say will be 7% annual growth in the US economy in 2021 post-pandemic.
Now though, those trades are getting crowded, and investment banks like Goldman Sachs are recommending clients look for safety in companies with strong free cash flow generation and more sensible valuations.
Goldman’s economists believe the growth seen in the US economy will peak at 10.5% in the second quarter before decelerating into 2022. The bank says this could hurt returns and create increased volatility for investors.
With this in mind, it’s time for investors to look for “quality,” according to the experts at Goldman.
In a Friday note to clients, Goldman analysts led by Deep Mehta said that there are many ways to define “quality,” but they believe it encompasses “a track record of strong asset productivity and financial returns as well as cash generation.”
Goldman analysts compiled a list of 15 such stocks for investors, but not only are these stocks “quality” options, they’re also contrarian plays.
Goldman found 15 underappreciated “quality” stocks where their analysts are “out-of-consensus,” meaning the majority of the Street is either “neutral” or “sell” rated while they hold a “buy” rating.
Investors looking to generate alpha with a contrarian view should look no further – compiled below are 15 contrarian, “quality” stocks that Goldman believes offer at least 10% upside by year-end.
Insider has also provided ticker and sector information, upside figures based on the analysts’ price targets, the percentage by which Goldman’s EPS or EBITDA targets exceed consensus levels, and the percentage of “buy” or equivalent ratings from the Street. The following data is as of June 18.
Markets Insider
Ticker: H
Sector: Gaming, Lodging, and Leisure
% of “Buy” Ratings: 5%
GS vs. consensus on 2021 EBITDA: 36%
Upside to Target: 26%
Source: Goldman Sachs
2. KeyCorp
Markets Insider
Ticker: KEY
Sector: Regional Banks & Consumer Fin
% of “Buy” Ratings: 29%
GS vs. consensus on 2021 EPS: 4%
Upside to Target: 14%
Source: Goldman Sachs
3. Marriott International
Markets Insider
Ticker: MAR
Sector: Gaming, Lodging and Leisure
% of “Buy” Ratings: 32%
GS vs. consensus on 2021 EBITDA: 20%
Upside to Target: 14%
Source: Goldman Sachs
4. Occidental Petroleum Corp.
Markets Insider
Ticker: OXY
Sector: E&P
% of “Buy” Ratings: 32%
GS vs. consensus on 2021 EBITDA: 9%
Upside to Target: 18%
Source: Goldman Sachs
5. Pentair Plc
Markets Insider
Ticker: PNR
Sector: Clean Energy
% of “Buy” Ratings: 37%
GS vs. consensus on 2021 EBITDA: 6%
Upside to Target: 15%
Source: Goldman Sachs
6. Grocery Outlet Holding
Markets Insider
Ticker: GO
Sector: Retail Specialty Hardlines
% of “Buy” Ratings: 40%
GS vs. consensus on 2021 EPS: 5%
Upside to Target: 17%
Source: Goldman Sachs
7. ViacomCBS Inc.
Markets Insider
Ticker: VIAC
Sector: Telecom & Cable
% of “Buy” Ratings: 40%
GS vs. consensus on 2021 EPS: 4%
Upside to Target: 79%
Source: Goldman Sachs
8. Amgen Inc.
Markets Insider
Ticker: AMGN
Sector: Telecom & Cable
% of “Buy” Ratings: 43%
GS vs. consensus on 2021 EPS: 6%
Upside to Target: 21%
Source: Goldman Sachs
9. Infinera Corp.
Markets Insider
Ticker: INFN
Sector: Hardware and Comm Tech
% of “Buy” Ratings: 43%
GS vs. consensus on 2021 EPS: >100%
Upside to Target: 18%
Source: Goldman Sachs
10. Par Pacific Holdings
Markets Insider
Ticker: PARR
Sector: Integrated Oil and Refiners
% of “Buy” Ratings: 43%
GS vs. consensus on 2021 EBITDA: 21%
Upside to Target: 18%
Source: Goldman Sachs
11. Caterpillar Inc.
Markets Insider
Ticker: CAT
Sector: Machinery & Diversified Industrials
% of “Buy” Ratings: 44%
GS vs. consensus on 2021 EPS: 12%
Upside to Target: 20%
Source: Goldman Sachs
12. Moderna Inc.
Markets Insider
Ticker: MRNA
Sector: Biotechnology
% of “Buy” Ratings: 44%
GS vs. consensus on 2021 EPS: 15%
Upside to Target: 15%
Source: Goldman Sachs
13. Tesla Inc.
Markets Insider
Ticker: TSLA
Sector: Autos & Industrial Tech
% of “Buy” Ratings: 44%
GS vs. consensus on 2021 EBITDA: 11%
Upside to Target: 42%
Source: Goldman Sachs
14. Tyson Foods Inc.
Markets Insider
Ticker: TSN
Sector: Agribusiness & Packaging
% of “Buy” Ratings: 47%
GS vs. consensus on 2021 EBITDA: 2%
Upside to Target: 19%
Source: Goldman Sachs
15. Waste Management Inc.
Markets Insider
Ticker: WM
Sector: Machinery & Diversified Industrials
% of “Buy” Ratings: 47%
GS vs. consensus on 2021 EBITDA: 2%
Upside to Target: 11%
Source: Goldman Sachs
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