Last week, Goldman Sachs CEO David Solomon delivered a speech in Italy, warning of the potential for an artificial intelligence (AI) bubble following one of the biggest stock market rallies in years. Starting in November 2022, when OpenAI released ChatGPT, the stock market took off and now sits at record highs, following three years of double-digit gains. Solomon warned that some of the current AI frenzy was similar to the dot-com mania of the late 1990s and early 2000s. Most investors recall the incredible sell-off that followed almost five years of seemingly endless new highs for the stock market, before the bubble burst on March 10, 2000, and bottomed out in October of 2002. The Goldman Sachs leader warns that a “drawdown” (another term for a sell-off) could occur in the next 12 to 24 months. With a vast window like that, there is an excellent chance he will be proven right.
Founded in 1869, Goldman Sachs is the world’s second-largest investment bank by revenue and is ranked 55th on the Fortune 500 list of the largest U.S. corporations by total revenue. The Wall Street white-glove giant offers financing, advisory services, risk distribution, and hedging for the firm’s institutional and corporate clients. We review the firm’s Conviction List of top stock ideas every month, seeking companies that offer the highest dividends and have the safest investment profile. Four current picks are ideal for investors concerned about the potential for a “drawdown” over the next one to two years, which seems likely given the current lofty levels at which the stock market is trading.
Why we recommend Goldman Sachs stocks
Goldman Sachs is the acknowledged leader in the investment landscape on Wall Street and worldwide. The firm’s top-notch research department continues to provide institutional and high-net-worth clients with the best ideas across the investment spectrum. It is likely to continue doing so for years. While the firm states it is not yet time to worry about a tech bubble, it is likely high time to prepare for one. They said this recently:
There are elements of investor behavior and market pricing currently that resemble previous bubbles, including the rise in absolute valuations, high market concentration, increased capital intensity among leading companies, and the emergence of vendor financing. However, we see key differences: First, the appreciation of the technology sector has been driven by fundamental growth rather than irrational speculation about future growth. Second, the leading companies that have seen the strongest returns have robust balance sheets. Third, the AI space has, so far, been dominated by a few incumbents; most bubbles form during a period of intense competition as both investors and new entrants flood into the space.
AT&T
The world’s fourth-largest telecommunications company, measured by revenue, offers a solid dividend yield of 4.24%. AT&T Inc. (NYSE: T) has been undergoing a lengthy restructuring while lowering its dividend. Seventeen analysts have given the stock a Buy rating, indicating comprehensive Wall Street support. The legacy telecom company provides a range of telecommunications, media, and technology services worldwide. Its Communications segment offers wireless voice and data communications services.
AT&T sells through its company-owned stores, agents, and third-party retail stores:
- Handsets
- Wireless data cards
- Wireless computing devices
- Carrying cases
- Hands-free devices
AT&T also provides:
- Data
- Voice
- Security
- Cloud solutions
- Outsourcing
- Managed and provided professional services
- Customer premises equipment for multinational corporations, small and mid-sized businesses, and governmental and wholesale customers.
Additionally, this segment provides residential customers with broadband fiber and legacy telephony voice communication services.
It markets its communications services and products under:
- AT&T
- Cricket
- AT&T Prepaid
- AT&T Fiber
The company’s Latin America segment provides wireless services in Mexico and video services throughout the region. This segment markets its services and products under the AT&T and Unefon brands.
Goldman Sachs has a $32 price target for the stock
Bank of America
This American multinational investment bank and financial services company posted outstanding second-quarter results, pays a solid 2.06% dividend, and plans to increase its share repurchase program. Bank of America Corp. (NYSE: BAC) is a ubiquitous bank and financial holding company in the United States.
Its segments include:
- Consumer Banking
- Global Wealth & Investment Management (GWIM)
- Global Banking
- Global Markets
The Consumer Banking segment offers a range of credit, banking, and investment products and services to consumers and small businesses.
The GWIM includes two businesses:
- Merrill Wealth Management, which provides tailored solutions to meet clients’ needs through a complete set of investment management, brokerage, banking, and retirement products
- Bank of America Private Bank, which provides comprehensive wealth management solutions
The Global Banking segment offers a range of lending-related products and services, including integrated working capital management and treasury solutions, as well as underwriting and advisory services.
The Global Markets segment offers sales, trading, and research services to institutional clients across fixed income, credit, currency, commodity, and equity markets.
Goldman Sachs has a target price of $56.
Duke Energy
This American electric power and natural gas holding company is headquartered in Charlotte, North Carolina, in a growing part of the country. Duke Energy Corp. (NYSE: DUK) pays a hefty 3.38% dividend, and its subsidiaries operate as energy companies in the United States.
It operates through two segments:
- Electric Utilities and Infrastructure (EU&I)
- Gas Utilities and Infrastructure (GU&I)
The EU&I segment generates, transmits, distributes, and sells electricity in the Carolinas, Florida, and the Midwest. To develop electricity, Duke Energy uses the following:
- Coal
- Hydroelectric
- Natural gas
- Oil
- Solar and wind sources
- Renewables
- Nuclear fuel
This segment also sells electricity to municipalities, electric cooperative utilities, and load-serving entities.
The GU&I segment distributes natural gas to residential, commercial, industrial, and power generation natural gas customers. The segment also invests in pipeline transmission projects, renewable natural gas projects, and natural gas storage facilities.
The $138 Goldman Sachs price target is almost 13% above the current trading level.
Valero
This is one of the safest ways for investors to play the energy sector, as refining capacity has shrunk and supply has increased. Valero Energy Corp. (NYSE: VLO) is a multinational manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels, as well as petrochemical products. And it pays a dividend yield of 2.74%.
The company sells its products primarily in:
- United States
- Canada
- United Kingdom
- Ireland
- Latin America
Valero operates through three segments:
- The Refining segment encompasses the operations of its petroleum refineries, the associated activities involved in marketing its refined petroleum products, and the logistics assets that support these operations.
- The Renewable Diesel segment encompasses the operations of Diamond Green Diesel (DGD) and its associated activities, including marketing renewable diesel and renewable naphtha.
- The Ethanol segment includes the operations of its ethanol plants and the associated activities involved in marketing its ethanol and co-products.
Valero owns over 15 petroleum refineries located in the United States, Canada, and the United Kingdom.
Goldman Sachs has set a $178 target price for the stock.
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