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Goldman Sachs: These 2 “Strong Buy” Stocks Could Surge at Least 30%
We’re well into the first quarter of 2021 now, and it’s a good time to take stock of what’s behind us, and how it will impact what lies ahead. Goldman Sachs strategist Jan Hatzius believes that we are on an upward trajectory, with better times ahead. Hatzius sees the developed economies expanding as the corona crisis recedes. For the US, particularly, he is impressed by the ‘very substantial fiscal support’ implies in the latest COVID relief package. Even with that, however, Hatzius believes that Q4 was a weaker period, and we are still not quite out of it. He’s putting Q1 growth at 5%, and says that we’re going to see further expansion ‘concentrated in the spring,’ and an ‘acceleration to 10% growth rate in Q2.’ And by accelerations, Hatzius means that investors should expect Q2 GDP in the neighborhood of 6.6%. Hatzius credits that forecast to the ongoing vaccination programs, and the continued development of COVID vaccines. The Moderna and Pfizer vaccines are already in production and circulation. Hatzius says, in relation to these programs, “That fact that we are developing more options and that governments around the world are going to have more options to choose between different vaccines [means] production is likely to ramp up in pretty sharply in incoming months… It’s definitely a major reason for our optimistic growth forecast.” In addition to Hatzius' look at the macro situation, analysts from Goldman Sachs have also been diving into specific stocks. Using TipRanks' database, we identified two stocks that the firm predicts will show solid growth in 2021. The rest of the Street also backs both tickers, with each sporting a “Strong Buy” consensus rating. Stellantis (STLA) We’ve talked before about the Detroit automakers, and rightly so -- they are major players on the US economic scene. But the US hasn’t got a monopoly on the automotive sector, as proven by Netherlands-based Stellantis. This international conglomerate is the result of a merger between France’s Groupe PSA and the Italian-American Fiat-Chrysler. The deal was a 50-50 all stock agreement, and Stellantis boasts a market cap exceeding $50 billion, and a portfolio of near-legendary nameplates, including Alpha Romeo, Dodge Ram, Jeep, and Maserati. The deal that formed Stellantis, now the world’s fourth largest automotive manufacturer, took 16 months to accomplish, after it was first announced in October 2019. Now that it is reality – the merger was completed in January of this year – the combined entity promises cost savings of nearly 5 billion euros in the operations of both Fiat-Chrysler and PSA. These savings look to be realized through greater efficiency, and not through plant closures and cutbacks. Stellantis is new in the markets, and the STLA ticker has supplanted Fiat-Chrysler’s FCAU on New York Stock Exchange, giving the new company a storied history. The company’s share value has nearly tripled since its low point, reached last March during the ‘corona recession,’ and has stayed strong since the merger was completed. Goldman Sachs analyst George Galliers is upbeat on Stellantis’ future, writing, “We see four drivers which, in our view, will enable Stellantis to deliver. 1) PSA and FCA’s product portfolios in Europe cover similar segment sizes at similar price points… 2) Incremental economies of scale can potentially have a material impact on both companies... 3) Both companies are at a relatively nascent stage [in] electric vehicle programs. The merger will prevent duplication and deliver synergies. 4) Finally, we see some opportunities around central staffing where existing functions can likely be consolidated...” In line with this outlook, Galliers rates STLA a Buy and his $22 price target indicates room for 37% growth in the year ahead. (To watch Galliers’ track record, click here) Overall, this merger has generated plenty of buzz, and on Wall Street there is broad agreement that the combined company will generate returns. STLA has a Strong Buy consensus rating, based on a unanimous 7 buy-side reviews. The stock is priced at $16.04, and the average target of $21.59 is congruent with Galliers’, suggesting a 34.5% one-year upside potential. (See STLA stock analysis on TipRanks) NRG Energy (NRG) From automotive, we move to the energy sector. NRG is a $10 billion utility provider, with dual head offices in Texas and New Jersey. The company provides electricity to more than 3 million customers in 10 states plus DC, and boasts a over 23,000 MW was generating capacity, making it one of North America’s largest power utilities. NRG’s production includes coal, oil, and nuclear power plants, plus wind and solar farms. In its most recent quarterly report, for 3Q20, NRG showed $2.8 billion in total revenues, along with $1.02 EPS. While down year-over-year, this was still more than enough to maintain the company’s strong and reliable dividend payment f 32.5 cents per common share. This annualizes to $1.30 per common share, and gives a yield of 3.1%. Analyst Michael Lapides, in his coverage of this stock for Goldman Sachs, rates NRG a Buy. His $57 price target suggest an upside of 36% from current levels. (To watch Lapides’ track record, click here) Noting the recent acquisition of Direct Energy, Lapides says he expects the company to deleverage itself in the near-term. “After NRG’s acquisition of Direct Energy, one of the larger electricity and natural gas competitive retailers in the US, we view NRG’s business as somewhat transformed. The integrated business model — owning wholesale merchant power generation that supplies electricity that gets used to serve customers supplied by NRG’s competitive retail arm — reduces exposure to merchant power markets and commodity prices, while increasing FCF potential," Lapides wrote The analyst summed up, "We view 2021, from a capital allocation perspective, as a deleveraging year, but with NRG creating almost $2bn/year in FCF, we see a pick up in share buybacks as well as 8% dividend growth ahead in 2022-23." We’re looking at another stock here with a Strong Buy analyst consensus rating. This one based on a 3 to 1 split between Buy and Hold reviews. NRG is trading for $41.84 and its $52.75 average price target suggests a 26% upside from that level on the one-year time frame. (See NRG stock analysis on TipRanks) To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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February 14, 2021 at 06:01PM
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