There are two trains of thought on Wall Street about the direction of the market and the economy. One is basically that we are now in a bear market rally, and when the current strength the market has seen to start the year rolls over, we likely retest the lows we put in last summer. The other is that interest rate hikes are close to being over, the consumer has been resilient, the economy will not be as bad as people think and there is a possibility for what is called a soft landing.
A soft landing in the business cycle is the process of an economy shifting from growth to slow growth to potentially flat as it approaches but avoids a recession. It is usually caused by government attempts to slow inflation, which is of course what the Federal Reserve has done over the past year by raising the federal funds rate from 0% to 4.25% to 4.50%.
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A new Goldman Sachs research report highlights the stocks the firm feels will do well in a soft or hard landing. Note that the strategists at the bank are not as negative as others on Wall Street, and the report said this:
For 2023, most investors expect the US will enter a recession at some point during the year, and most economists have a similar forecast. In contrast, Goldman Sachs economists believe the US will avoid a recession and assign only a 1/3 probability of a downturn. Recent labor and inflation data support the soft landing thesis. But prudent investors should at least consider the implications if a hard landing transpires.
The analysts identified 66 companies that should outperform in a soft landing environment. We screened those companies and found six top stocks that are Buy rated at Goldman Sachs and come with dependable dividends. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Blue Owl Capital
Goldman Sachs team is quite positive on this asset management company, as the stock is on the firm’s Conviction List of top stock picks. Blue Owl Capital Inc. (NYSE: OWL) offers permanent capital base solutions that enable it to offer a holistic platform to middle market companies, large alternative asset managers and corporate real estate owners and tenants.
The company provides direct lending products that offer private credit products comprising diversified, technology, first lien and opportunistic lending to middle-market companies. Its GP capital solutions products offer capital solutions, including GP minority equity investments, GP debt financing and professional sports minority investments to large private capital managers. Its real estate products are focused on structuring sale-leaseback transactions, which includes triple net leases.
Blue Owl Capital offers its solutions through permanent capital vehicles, as well as long-dated private funds.
Investors receive a 3.58% dividend. The Goldman Sachs price target is $15, and the consensus target is $15.30. Tuesday’s last trade was for $12.54 a share.
Capital One Financial
Rising interest rates are typically a positive for banks, and this top stock is offering a very solid entry point. Capital One Financial Corp. (NYSE: COF) operates as the financial services holding company for the Capital One Bank (USA) and Capital One, which provides various financial products and services in the United States, Canada and the United Kingdom.
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The company accepts checking accounts, money market deposits, negotiable order of withdrawals, savings deposits and time deposits. Its loan products include credit card loans; auto and retail banking loans; and commercial and multifamily real estate, and commercial and industrial loans.
Capital One Financial also offers credit and debit card products, online direct banking services and treasury management and depository services. It serves consumers, small businesses and commercial clients through digital channels, branches, cafés and other distribution channels located in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and California.
Shareholders receive a 2.38% dividend. Goldman Sachs has a target price of $113 on Capital One Financial stock. The consensus target is $114.22, and the stock closed on Tuesday at $103.63.
Carlyle Group
This limited partnership is a solid holding for investors looking for private equity exposure. Carlyle Group L.P. (NYSE: CG) is an investment firm specializing in direct and fund-of-fund investments. Within direct investments, it specializes in management-led/leveraged buyouts, privatizations, divestitures, strategic minority equity investments, structured credit, global distressed and corporate opportunities, small and middle market, equity private placements, consolidations and buildups, senior debt, mezzanine and leveraged finance, as well as venture and growth capital financings, seed/startup, early venture, emerging growth, turnaround, mid venture, late venture and private investment in public equity (PIPE) deals.
Within the industrial sector, the firm invests in manufacturing, building products, packaging, chemicals, metals and mining, forestry and paper products, and industrial consumables and services. In consumer and retail sectors, it invests in food and beverage, retail, restaurants, consumer products, domestic consumption, consumer services, personal care products, direct marketing and education.
Within the aerospace, defense, business services, and government services sectors, it seeks to invest in defense electronics, manufacturing and services, government contracting and services, information technology and distribution companies. In the telecommunication and media sectors, it invests in cable TV, directories, publishing, entertainment and content delivery services, wireless infrastructure/services, fixed line networks, satellite services, broadband and internet and infrastructure.
Within real estate, the firm invests in office, hotel, industrial, retail, for sale residential, student housing, hospitality, multifamily residential, homebuilding and building products and senior living sectors. The firm seeks to make investments in growing businesses including those with overleveraged balance sheets. The firm seeks to hold its investments for four to six years.
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In the health care sector, it invests in health care services, outsourcing services, companies running clinical trials for pharmaceutical companies, managed care, pharmaceuticals, pharmaceutical-related services, health care IT, medical, products and devices.
Carlyle Group stock comes with a 3.90% dividend. The $37 Goldman Sachs target price is less than the $40.43 consensus figure, but shares closed on Tuesday at $33.54.
Masco
This top building products company could really benefit from a soft landing for the economy. Masco Corp. (NYSE: MAS) designs, manufactures and distributes home improvement and building products in North America, Europe, and elsewhere.
The company’s Plumbing Products segment offers faucets, showerheads, handheld showers, valves, bath hardware and accessories, bathing units, shower bases and enclosures, sinks, toilets, acrylic tubs, shower trays, spas, exercise pools and fitness systems. It offers brass, copper and composite plumbing system components; connected water products; thermoplastic solutions, extruded plastic profiles, specialized fabrications and PEX tubing products, as well as other non-decorative plumbing products.
The company’s Decorative Architectural Products segment offers paints, primers, specialty coatings, stains and waterproofing products, as well as paint applicators and accessories; cabinet and door hardware, functional hardware, wall plates, hook and rail products, closet organization systems and picture hanging accessories; decorative bath hardware, mirrors and shower accessories and doors; and decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems.
The company sells its products to plumbing, heating and hardware wholesalers; home centers and online retailers; hardware stores; electrical and landscape distributors; lighting showrooms; building supply outlets; and other mass merchandisers.
Here, the dividend yield is 2.15%. Goldman Sachs has set its price target at $60, well above the $54.71 consensus target for Masco stock, as well as Tuesday’s closing share price of $50.93.
Parker-Hannifin
This top industrial company looks poised for a solid 2023. Parker-Hannifin Inc. (NYSE: PH) manufactures and sells motion and control technologies and systems for various mobile, industrial and aerospace markets worldwide.
The Diversified Industrial segment provides pneumatic, fluidic and electromechanical components and systems, as well as filters, systems and diagnostics solutions to monitor and remove contaminants from fuel, air, oil, water and other liquids and gases.
The Aerospace Systems segment offers flight control, hydraulic, fuel, fluid conveyance and engine systems and components for commercial and military airframe and engine programs. It also provides electronics thermal management heat rejection systems and single-phase and two-phase heat collection systems for radar, inverse synthetic aperture radar and power electronics.
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Shareholders receive a 1.68% dividend. Parker-Hannifin stock has a $352 price target at Goldman Sachs. The $336.47 consensus target is closer to Tuesday’s close at $314.71.
24/7 Wall St.Truist Financial
This company was created through a merger of SunTrust Bank and BB&T in 2019. Truist Financial Corp. (NYSE: TFC) provides banking and trust services in the southeastern and mid-Atlantic United States. Its deposit products include non-interest-bearing checking, interest-bearing checking, savings and money market deposit accounts, as well as certificates of deposit and individual retirement accounts.
The company also provides funding; asset management; automobile lending; bankcard lending; consumer finance; home equity and mortgage lending; insurance, such as property and casualty, life, health, employee benefits, workers compensation and professional liability, surety coverage, title, and other insurance products; investment brokerage; mobile/online banking; and payment, lease financing, small business lending, and wealth management/private banking services.
In addition, Truist offers association, capital market, institutional trust, insurance premium and commercial finance, international banking, leasing, merchant, commercial deposit and treasury, government finance, commercial middle market lending, small business and student lending, floor plan and commercial mortgage lending, mortgage warehouse lending, private equity investment, real estate lending and supply chain financing services. It provides corporate and investment banking, retail and wholesale brokerage, securities underwriting and investment advisory services.
Investors receive a 4.41% dividend. The Goldman Sachs price target is $50, while the consensus target is $51.29. Truist Financial stock closed at $47.15 on Tuesday.
Financials are big soft-landing ideas, and it makes sense as the banks can make more net interest income with higher rates. With the fourth-quarter earnings reporting season underway, investors may want to make partial purchases and see how the results come in against expectations.
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