In this piece, we will take a look at ten undervalued stocks to buy according to Goldman Sachs. If you want to skip out background on the bank, then take a look at 5 Undervalued Stocks to Buy According to Goldman Sachs.
Even with turmoil in its ranks, investment bank Goldman Sachs continues to maintain its upbeat sentiment about a recession in the U.S. With the third quarter of 2023 underway, the U.S. economy has come quite far ahead from the doom and gloom that had plagued investors’ minds last year. The economy, despite downward growth revisions later on, maintained growth during the second quarter and there is cautious optimism that the Federal Reserve just might forgo an interest rate increase later this month. At the same time, the labor market is also cooling, and inflation on the consumer front is dropping.
In its fresh analyst note, the bank believes that the odds of a recession taking place in America over the next year is 15%, down from an earlier 20%. The 15% odds are still higher than the ‘soft landing’ that Bank of America is projecting, but while the latter’s shift is a recent one, Goldman Sachs has been one of the most cautious banks in the industry when it comes to recession speculation throughout the course of this year. The latest note from Goldman Sachs’ chief economist Jan Hatzius, which comes a handful of weeks before the Federal Reserve decides whether to increase interest rate hikes or take another pause, outlines that there will be no rate hike in September, and if the data sets create space, then there won’t be a rate hike in November either.
The economist added that there is little reason to fear any lag from earlier policy tightening, with a growth in disposable income from a surprisingly robust labor market also in the cards for next year. As to when the interest rates are going to come down, Hatzius believes that rate cuts are unlikely for at least more than two quarters with the first cuts expected to take place during the second quarter of 2024. The latest remarks come after a strong rally in the U.S. dollar which appears to have re calibrated demand for the greenback in global markets despite the hawkishness of the Federal Reserve seemingly appearing at its end.
It also follows recent remarks from Hatzius made to CNBC which came after the latest labor market report. According to him:
I think it’s a very constructive report. We had a pretty good increase in non farm payrolls, in fact somewhat stronger than expected especially if you allow for some of the special factors, the yellow bankruptcy and the Hollywood writers strike. If you add that in your above 200 thousand. Household employment actually growing above 200 thousand as well. The increase in the unemployment rate that we saw, which is you know pretty sizeable, three tenths is pretty sizeable. But it was entirely driven by an increase is labor force participation, which is what you want to see. And then, the average hourly earnings number that showed a downside surprise, only a two tents increase, and that is also what the Fed wants to see because at this time wages are still growing somewhat faster than what is compatible with 2% inflation in the long term. So if I look at this, and then also if I bring in the JOLTS number, the job openings and quits numbers that we got early in the week, this is very consistent with a soft landing.
Hatzius also believes that inflation will continue to drop last year and lead to interest rate cuts. However, the price increase rate is unlikely to touch the Fed’s preferred 2% target range.
Taking a brief look at what’s going on within Goldman Sachs’ walls as the market turns optimistic about the economy, the bank is currently attempting to refocus back to investment banking. The shift follows after Goldman decided to target consumer banking, but losses in the sector have rattled broader confidence in the bank’s management. Its one of the few mega banks whose shares have not performed well this year, as stock is down 5% year to date. This makes the shares lag traditional rival Morgan Stanley (NYSE:MS) whose stock is flat year to date and post losses when compared to JPMorgan Chase & Co. (NYSE:JPM) whose stock is up 8%. For more details about the turmoil at Goldman Sachs, you can check out Goldman Sachs Growth Stocks: Top 12 Stocks. This list was compiled by ranking some stocks in the bank’s portfolio by their forward price to earnings ratio, with the top three picks being Tesla, Inc. (NASDAQ:TSLA), Zscaler, Inc. (NASDAQ:ZS), and CyberArk Software Ltd. (NASDAQ:CYBR). Speaking of forward price to earnings, Goldman’s Sachs P/E ratio is currently 8.67, while the ratios for JPMorgan and Morgan Stanley come out as 10.09 and 11.67, respectively. Seems like Wall Street is cautious about Goldman Sachs’ growth prospects.
But what about undervalued stocks? Well, an undervalued stock can be defined as one whose current share price is lower than what analysts expect on average and today we’ve taken a look at some such stocks in Goldman Sachs’ investment portfolio. The top three picks in the list are American Tower Corporation (NYSE:AMT), InterDigital, Inc. (NASDAQ:IDCC), and SolarEdge Technologies, Inc. (NASDAQ:SEDG).
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Our Methodology
To compile our list of Goldman Sachs’ undervalued stocks, we took a look at the top 40 stocks in its portfolio and ranked them through the percentage difference between their current share price and average share price targets. Out of these, the top ten stocks are as follows.
10 Undervalued Stocks to Buy According to Goldman Sachs
10. McDonald’s Corporation (NYSE:MCD)
Share Price Upside: 17%
Average Analyst Share Price Target: $328.59
McDonald’s Corporation (NYSE:MCD) is one of the largest fast food retailers in the world. Its economic well being depends on the broader state of the economy, with higher discretionary incomes being a tailwind for the firm. Goldman Sachs owned 4.4 million shares of McDonald’s Corporation (NYSE:MCD) that were worth $1.3 billion as of Q2 2023 end.
During the same time period, 68 out of the 910 hedge funds part of Insider Monkey’s database had also invested in the fast food company. Out of these, McDonald’s Corporation (NYSE:MCD)’s biggest investor is Ken Griffin’s Citadel Investment Group since it owns 2.6 million shares that are worth $777 million.
Along with InterDigital, Inc. (NASDAQ:IDCC), American Tower Corporation (NYSE:AMT), and SolarEdge Technologies, Inc. (NASDAQ:SEDG), McDonald’s Corporation (NYSE:MCD) is an undervalued stock to buy according to Goldman Sachs.
9. Microsoft Corporation (NASDAQ:MSFT)
Share Price Upside: 18%
Average Analyst Share Price Target: $387.17
Microsoft Corporation (NASDAQ:MSFT) is one of the hottest stocks this year, having gained 37% on the market. The firm is currently facing scrutiny in Europe for potential antitrust actions, and as a preemptive measure, it has unbundled its video conference and productivity software products.
By the end of June 2023, 300 out of the 910 hedge funds surveyed by Insider Monkey had held a stake in Microsoft Corporation (NASDAQ:MSFT). Goldman Sachs owns $13.2 billion worth of shares and the company’s biggest hedge funds stakeholder is Michael Larson’s Bill & Melinda Gates Foundation Trust courtesy of a $13.3 billion stake.
8. Ford Motor Company (NYSE:F)
Share Price Upside: 19%
Average Analyst Share Price Target: $14.44
Ford Motor Company (NYSE:F) is an iconic American car manufacturer. Like Hollywood, it is also currently dealing with worker strikes, and a union rejected Ford Motor Company (NYSE:F)’s latest offer, calling it an “insult”.
40 out of the 910 hedge funds profiled by Insider Monkey for their investments during this year’s second quarter had bought the firm’s shares. Out of these, Ford Motor Company (NYSE:F)’s shareholder is Ken Fisher’s Fisher Asset Management through an investment of $918 million. Goldman Sachs, on the other hand, owns 16.6 million shares that are worth $1.8 billion.
7. UnitedHealth Group Incorporated (NYSE:UNH)
Share Price Upside: 20%
Average Analyst Share Price Target: $573.46
UnitedHealth Group Incorporated (NYSE:UNH) is a healthcare benefits and plans provider. Its shares are rated Strong Buy on average, and the shares haven’t done well this year as they are down 8% so far. However, the stock is still rated Strong Buy on average, with Goldman Sachs increasing its stake by 3% in Q2 2023 for a final value of $2.3 billion.
During June 2023, 111 hedge funds among the 910 hedge part of Insider Monkey’s research were UnitedHealth Group Incorporated (NYSE:UNH)’s investors. Rajiv Jain’s GQG Partners is the biggest investor among these since it owns 4.8 million shares that are worth $2.3 billion.
6. Meta Platforms, Inc. (NASDAQ:META)
Share Price Upside: 23%
Average Analyst Share Price Target: $363.26
When it comes to share price growth, Meta Platforms, Inc. (NASDAQ:META) has been the star of the market as the stock has gained 137% so far and has beaten mega peers. Like Microsoft, it is also facing scrutiny in the EU and reports suggest that the firm might introduce paid versions of some platforms to provide users with an advertisement free service.
225 out of the 910 hedge funds polled by Insider Monkey for their Q2 2023 shareholdings had held a stake in the company. Meta Platforms, Inc. (NASDAQ:META)’s largest hedge fund stakeholder is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital courtesy of a $3 billion stake while Goldman Sachs owns $2.8 billion worth of shares.
American Tower Corporation (NYSE:AMT), Meta Platforms, Inc. (NASDAQ:META), InterDigital, Inc. (NASDAQ:IDCC), and SolarEdge Technologies, Inc. (NASDAQ:SEDG) are some top undervalued stocks in Goldman Sachs’ investment portfolio.
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Disclosure: None. 10 Undervalued Stocks to Buy According to Goldman Sachs is originally published on Insider Monkey.