Goldman Sachs: These are the 24 best stocks to buy now as the market rally stretches valuations higher

  • Markets have rallied on the back of strong earnings, good macroeconomic data, and bullish sentiment.
  • But it’s easy to get swept up in blind optimism, and investors need to proceed with caution.
  • Goldman Sachs compiled the 22 best investing ideas from its US analysts, regardless of sector.

Lower inflation, signals that the Federal Reserve will end its rate hike cycle, and data indicating that the United States may just avoid a recession after all have cheered investors.

With the influx of good news has come a wave of investor optimism, and the S&P 500 has risen higher than many analysts expected it to go this year. However, the stock market’s strength may be its undoing, as valuations outpace reality and investors may drag the market back down to earth.

“US equities are trapped between macroeconomic news and valuation.” “Stocks do not appear cheap, but there is little doubt that the macro news — higher growth, lower inflation — is a more equity-friendly mix than was expected,” wrote Steven Kron, Goldman Sachs’ director of Americas equity research.

Kron broke down what he’s seeing in markets right now — and, more importantly, which stocks Goldman Sachs analysts are bullish on right now — in a note to clients published on August 1.

Too much good news can be a bad thing

Kron highlighted a number of positive signs of stock-market and economic health that have emerged in the last month.

These include strong performance by bank stocks following the earlier this year’s banking crisis, a recovery in oil prices after a recent downward trend, and increased advertising spending following a slowdown in the first half of the year.

In terms of the broader economy, it appears that the Federal Reserve’s rate hikes have been effective, with core PCE inflation rising only 4.1% year on year. Despite tight monetary policy, economists across the market, including Goldman Sachs’ own Jan Hatzius, believe that a recession is far less likely than it was at the start of the year.

“Receding inflation, an end to Fed tightening, and accelerating growth – these are all the makings of a Goldilocks environment for stocks, potentially,” Kron concluded.

However, not all news is good news. While investors will likely continue to focus on falling inflation data as a sign that it’s time to return to stocks, Kron is concerned about investors’ habit of buying on any decent economic data readings — even if the data itself isn’t particularly strong.

This has pushed markets higher, but it has also stretched valuations, according to Kron. He believes stocks are currently overpriced, with the S&P 500 only 4% below its peak in early 2022, and he is unsure how much further it can rise.

“Because the market has already taken meaningful credit for better growth and inflation news, the road ahead could be a little bumpier than in the last few weeks,” he wrote.

The 24 best stocks to buy in today’s market

It’s still a stock-picker’s market, and Kron has some recommendations for investors who want to strike a balance between avoiding over-exuberance and profiting from the current rally.

The 24 stocks listed below are Goldman Sachs analysts’ current top picks across a variety of investing styles and sectors. Analysts anticipate strong risk-adjusted returns for each of the stocks listed below, and the median upside to price target for the stocks listed below is 21%, indicating that these stocks have plenty of room to rise.

Each company’s ticker, price target, percent upside to that target, upside to next year’s expected earnings versus consensus estimates, and the percentage of Wall Street that recommends the stock as a buy are listed alongside it. In addition, each stock’s investment thesis is summarized briefly.

1. Shift4 Payments

Ticker: FOUR

Market Cap: $5.7 billion

Price Target: $88

Upside to Price Target: 28%

GS vsConsensus FY2: 6%

Street % Buy: 85%

Thesis: “Rapidly modernizing payments platform with a “captive” volume growth opportunity.”

2. Spirit Aerosystems

Ticker: SPR

Market Cap:$2.8 billion

Price Target: $45

Upside to Price Target: 41%

GS vsConsensus FY2: >20%

Street % Buy: 47%

Thesis: “Leveraged exposure to the long tail of post-pandemic global airplane re-supply.”

3. TE Connectivity

Ticker: TEL

Market Cap: $45 billion

Price Target: $168

Upside to Price Target: 17%

GS vsConsensus FY2: -1%

Street % Buy: 41%

Thesis: “A key ‘shovel supplier’ in the EV gold rush with strong FCF.”

4. Chevron

Ticker: CVX

Market Cap: $303.3 billion

Price Target: $187

Upside to Price Target: 14%

GS vsConsensus FY2: 7%

Street % Buy: 57%

Thesis: “Leading capital returns story supported by a clear cash flow inflection in 2024.”

5. First Solar

Ticker: FSLR

Market Cap: $22.2 billion

Price Target: $292

Upside to Price Target: 41%

GS vsConsensus FY2: 2%

Street % Buy: 52%

Thesis: “Dominant franchise in an industry benefiting from the Inflation Reduction Act (IRA).”

6. Warner Bros. Discovery

Ticker: WBD

Market Cap: $31.8 billion

Price Target: $20

Upside to Price Target: 53%

GS vsConsensus FY2: 2%

Street % Buy: 59%

Thesis: “Merger synergies and new streaming launch provide path to unique FCF growth in a Media stock.”

7. HCA Holdings

Ticker: HCA

Market Cap: $75.1 billion

Price Target: $329

Upside to Price Target: 21%

GS vsConsensus FY2: 2%

Street % Buy: 81%

Thesis: “A two-sided post-pandemic beneficiary with a longer-than-appreciated tail of pent-up demand.”

8. Merck

Ticker: MRK

Market Cap: $270.6 billion

Price Target: $131

Upside to Price Target: 23%

GS vsConsensus FY2: 3%

Street % Buy: 70%

Thesis: “Strong base business growing through acquisition and innovation in immunology and cardio.”

9. Vertex Pharmaceuticals

Ticker: VRTX

Market Cap: $90.7 billion

Price Target: $427

Upside to Price Target: 21%

GS vsConsensus FY2: 4%

Street % Buy: 66%

Thesis: “Undervalued pipeline alongside a dominant franchise.”

10. Bath & Body Works

Ticker: BBWI

Market Cap: $8.5 billion

Price Target: $50

Upside to Price Target: 35%

GS vsConsensus FY2: 4%

Street % Buy: 60%

Thesis: “Turnaround with new management pulling on low hanging sales driving levers.”

11. J.B. Hunt Transportation Services

Ticker: JBHT

Market Cap: $21.1 billion

Price Target: $225

Upside to Price Target: 10%

GS vsConsensus FY2: 4%

Street % Buy: 56%

Thesis: “A post-pandemic echo-boom beneficiary as goods traffic rebounds.”

12. Southern Co.

Ticker: SO

Market Cap: $79 billion

Price Target: $80

Upside to Price Target: 11%

GS vsConsensus FY2: 0%

Street % Buy: 42%

Thesis: “Non-traditional clean energy grower with above average returns.”

13. Macy’s

Ticker: M

Market Cap: $4.5 billion

Price Target: $23

Upside to Price Target: 39%

GS vsConsensus FY2: 1%

Street % Buy: 38%

Thesis: “Department store focused on profitable growth through a host of self-help initiatives.”

14. Johnson Controls International

Ticker: JCI

Market Cap: $47.7 billion

Price Target: $81

Upside to Price Target: 16%

GS vsConsensus FY2: 0%

Street % Buy: 71%

Thesis: “A late-stimulus post-pandemic beneficiary.”

15. Apple

Ticker: AAPL

Market Cap: $3,089.9 billion

Price Target: $222

Upside to Price Target: 13%

GS vsConsensus FY2: 6%

Street % Buy: 67%

Thesis: “Sustained Services expansion story enabled by growing installed base.”

16. WW International

Market Cap: $0.9 billion

Ticker: WW

Price Target: $13

Upside to Price Target: 12%

GS vsConsensus FY2: >20%

Street % Buy: 50%

Thesis: “Corporate transformation with a steep runway for growth.”

17. American International Group

Ticker: AIG

Market Cap: $43.6 billion

Price Target: $79

Upside to Price Target: 31%

GS vsConsensus FY2: 13%

Street % Buy: 61%

Thesis: “Self-help story with long runway to returns improvement.”

18. JPMorgan Chase & Co.

Ticker: JPM

Market Cap: $461.6 billion

Price Target: $173

Upside to Price Target: 10%

GS vsConsensus FY2: 9%

Street % Buy: 74%

Thesis: “Market share gainer with best-in-class returns through the cycle.”

19. PPG Industries

Ticker: PPG

Market Cap: $33.9 billion

Price Target: $175

Upside to Price Target: 22%

GS vsConsensus FY2: 6%

Street % Buy: 48%

Thesis: “A price/cost inflection story with post-pandemic topline momentum.”

20. Amazon

Ticker: AMZN

Market Cap: $1,371.6 billion

Price Target: $165

Upside to Price Target: 23%

GS vsConsensus FY2: 10%

Street % Buy: 94%

Thesis: “Rebounding eCommerce platform with potential for another AWS adoption cycle with AI tailwind.”

21. Blue Owl Capital

Ticker: OWL

Market Cap: $17.3 billion

Price Target: $15.5

Upside to Price Target: 26%

GS vsConsensus FY2: 5%

Street % Buy: 83%

Thesis: “Riding the mass affluent retail private investment wave.”

22. Tanger Factory Outlet Centers

Ticker: SKT

Market Cap: $2.5 billion

Price Target: $25

Upside to Price Target: 7%

GS vsConsensus FY2: 3%

Street % Buy: 11%

Thesis: “Organic growth on sale in a counter-intuitive end market.”

23. Republic Services

Ticker: RSG

Market Cap: $47.8 billion

Price Target: $175

Upside to Price Target: 16%

GS vsConsensus FY2: 0%

Street % Buy: 50%

Thesis: “Margin upside in a consolidated end-market with an energy development kicker.”

24. Salesforce

Ticker: CRM

Market Cap: $219.2 billion

Price Target: $325

Upside to Price Target: 44%

GS vsConsensus FY2: 4%

Street % Buy: 70%

Thesis: “Growth reacceleration story with a runway to outsized free cash flow.”

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