Any way you slice it, after over a year of one of the hottest stock market rallies in history, many of the companies in the “crowded trade” department are expensive. If we get a large and protracted sell-off many of these companies could be in for a huge fall. While the now decade-long juicing of the stock market courtesy of the Federal Reserve regardless of who is at the helm remains in place, changes are coming, and that’s exactly why the stock market had its worst week since October last week.
In a very timely research report from Goldman Sachs, analysts make the case that the time has come for investors to be much more focused on valuation metrics and quality. They noted this in the report.
While the Value vs. Growth rotation and the reflation trade have dominated investor attention this year, quality/defensive styles have lagged on a relative basis, though have rebounded somewhat. Relative valuations are now in-line with historical averages suggesting investors are likely to be more selective when looking for opportunities within quality stocks. Against this backdrop we look for stocks with quality characteristics that still trade at a discount/attractive multiples. While there are many ways to define quality, we believe a track record of strong asset productivity and financial returns as well as cash generation are important indicators.
The Goldman Sachs team published a list of Buy-rated stocks with high and improving asset productivity, solid financial returns, and attractive valuation. We selected five in different sectors that could be great ideas for growth stock investors the rest of 2021 and beyond. Remember that no single analyst call should ever be used as a basis to buy or sell a stock.
Advanced Micro Devices
This top semiconductor company is down almost 19% year to date. Advanced Micro Devices, Inc. (NYSE: AMD) operates as a semiconductor company worldwide. The company operates in two segments, computing and graphics; and enterprise, embedded and semi-custom. Its products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units, data center and professional GPUs, and development services, and server and embedded processors, and semi-custom System-on-Chip products, development services, and technology for game consoles.
The company provides x86 microprocessors for desktop PCs under the AMD Ryzen, AMD Ryzen PRO, Ryzen, Threadripper, AMD A-Series, AMD FX, AMD Athlon, AMD Athlon PRO, and AMD Pro A-Series processors brands; microprocessors for notebook and 2-in-1s under the AMD Ryzen, AMD A-Series, AMD Athlon, AMD Ryzen PRO, AMD Athlon PRO, and AMD Pro A-Series processors brands; microprocessors for servers under the AMD EPYC and AMD Opteron brands; and chipsets under the AMD trademark.
The company reported outstanding results where its data center revenue doubled, and some on Wall Street see a price objective with a path to long-term earnings per share of $4 or more. Toss in solid market share gains in the first quarter, and the chip giant could be poised for a strong second half.
The Goldman Sachs price target is set at $106, and that compares with the Wall Street consensus target of $104.34. The final trade for Monday came in at $82.59.
This company has been on a roll but remains a solid idea for growth investors now. Boston Beer Co. Inc. (NYSE: SAM) produces and sells alcohol beverages primarily in the United States. The company’s flagship beer is Samuel Adams Boston Lager. It offers various beers, hard ciders, and hard seltzers under the Samuel Adams, Twisted Tea, Truly Hard Seltzer, Angry Orchard, Dogfish Head, Angel City, Coney Island, Concrete Beach brand names.
The company markets and sells its products to a network of approximately 400 wholesalers in the United States, as well as international wholesalers, importers, or other agencies that in turn sell to retailers such as grocery stores, club stores, convenience stores, liquor stores, bars, restaurants, stadiums, and other retail outlets. It also sells products in Canada, Europe, Israel, Australia, New Zealand, the Caribbean, the Pacific Rim, Mexico, and Central and South America.
Goldman Sachs has set a massive $1,550 target price and that is versus the lower consensus target across Wall Street of $1,386. The last trade to hit the tape Monday came in at $986.08.
This top media and entertainment company remains a Wall Street favorite. Comcast Corporation (NYSE: CMCSA) is the largest U.S. provider of cable services, with over 22 million basic and nearly 27 million broadband subscribers. Through its acquisition of Sky, Comcast now has direct customer relationships with 53 million subscribers.
Comcast now also has a foothold in the European market (U.K., Germany, and Italy) in addition to its U.S. operations. Comcast also owns NBCU, which includes the NBC TV Networks, Telemundo, MSNBC, USA, SyFy, Bravo, E!, CNBC, Universal Films and Universal Theme Parks.
Comcast has invested in technology to build an advanced network that delivers among the fastest broadband speeds, and it brings customers personalized video, communications, and home management offerings.
Shareholders are paid a 1.75% dividend. The Goldman Sachs price target for the entertainment giant is set at $64 while the consensus is set at $61.12. The stock closed trading Monday at $57.28.
Needless to say with a massive infrastructure plan coming one way or another, equipment companies’ products will be in demand and this is a leader. Deere & Company (NYSE: DE) is the largest manufacturer/distributor of agricultural equipment worldwide with leading market shares in large farm-equipment segments. DE’s 3 main areas are: 1) Agriculture and turf (farm equipment, lawn and garden, other outdoor products); 2) Construction and forestry (construction earth-moving material-handling and timber-harvesting equipment); 3) Credit (financing).
The construction and forestry segment, which should benefit the most from an infrastructure push offers a range of machines and service parts used in construction, earthmoving, road building, material handling, and timber harvesting, including backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, landscape loaders, skid-steer loaders, milling machines, recyclers, slipform pavers, surface miners, asphalt pavers, compactors, tandem and static rollers, mobile crushers and screens, mobile and stationary asphalt plants, log skidders, feller bunchers, log loaders, log forwarders, and log harvesters and related logging attachments.
Shareholders are paid a 1.07% dividend. Goldman Sachs has set a giant $430 price objective, versus a lower $409.89 Wall Street consensus target and a Monday close of $337.88, up almost 3%.
This is a company that has a low 6% of foreign sales and it looks poised to see huge summer sales. Lowe’s Companies Inc (NYSE: LOW) operates as a home improvement retailer.
The company offers products for maintenance, repair, remodeling, and home decorating. It provides home improvement products under the categories of kitchens and appliances, lumber and building materials, tools and hardware, fashion fixtures, rough plumbing and electrical, lawn and garden, seasonal living, paint, home fashions, storage and cleaning, flooring, millwork, and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
While Lowe’s doesn’t have quite the store coverage that Home Depot does, with only 31% of the company’s stores in disaster-prone states, with hurricane season already underway the company’s two acquisitions — Alacrity and Maintenance Supply Headquarters — could helpit capture continued post hurricane demand should we have serious storms this year..
Lowe’s investors are paid a 1.69% dividend. The Goldman Sachs price objective is $239, and the Wall Street consensus is set just lower at $228.75. Shares closed Monday at $188.88.
Five top companies with quality financial metrics and solid cash flow that are cheap compared to many of the crowded trade stocks. In addition, each one offers double-digit upside to the Goldman Sachs price target. For investors looking to rest portfolios for the rest of the year, these are outstanding ideas now.