Goldman Sachs’ Bull Case Sees S&P 500 Rebounding 12% in 2023 — Here Are 3 Stocks to Bet on It

After 2022’s inflation-driven market meltdown, 2023’s bogey no 1 appears to be the fear of a world recession. Nonetheless, Sharmin Mossavar-Rahmani, CIO of Goldman Sachs’ wealth-management segment, doesn’t necessarily think it is a particularly bad omen for the stock market.

“We’re not arguing that today’s valuations fully discount a recession, but considering last yr’s equity drawdown, we do think a major a part of any valuation reset has already occurred,” Mossavar-Rahmani opined.

In actual fact, Mossavar-Rahmani thinks the S&P 500 has room to maneuver 12% higher this yr, even when a gentle recession does materialize. “Put simply,” she added, “markets bottom when the news remains to be bad.”

Against this backdrop, Mossavar-Rahmani’s analyst colleagues on the banking giant have pinpointed three names that they think will profit from such a rally. We ran the tickers through TipRanks database to see what other Wall Street’s analysts must say about them.

Salesforce, Inc. (CRM)

The primary Goldman pick we’re is software giant Salesforce. The corporate is a customer relationship management (CRM) specialist, providing software and applications that help its clients offer a greater level of service to their very own customers. Services run the gamut from support to analytics and relationship intelligence to personalized customer support, sales, and every little thing in between. Salesforce is considered one of the most important software providers on the planet, boasting a market cap north of $148 billion.

That said, like many other tech firms, recent times have been no easy ride, and the corporate only recently announced a ten% reduction to its workforce. Moreover, several execs have been handing their notice in over the past few months, amongst them co-Chief Executive Bret Taylor, who said he’ll leave his post at the tip of January.

That announcement was made in tandem with the discharge of the corporate’s FQ3 results (October results). Salesforce delivered revenue of $7.84 billion, amounting to a 14.3% year-over-year uptick. Adj. EPS reached $1.40, easily trumping the Street’s $1.22 forecast. For the outlook, the corporate called for revenue for the fiscal fourth quarter to be within the range between $7.9 billion and $8.03 billion, just missing Wall Street’s call for $8.02 billion on the midpoint.

Despite the difficult environment, Goldman Sachs analyst Kash Rangan sees loads of potential for investors to grab onto.

“We see a constructive arrange for Salesforce when macro hurdles unwind and the corporate comes off a difficult period that features management departures, recent shareholder involvement and execution missteps inside Mulesoft and Tableau… We expect revenues and margins have the potential to double in the following 5-6 years, potentially quadrupling earnings in regular state. To that end, making inroads towards its operating margin expectations of 25% by CY25 can drive a better re-rating of the stock, as seen with firms akin to Microsoft, Adobe, Intuit and Autodesk, who’s valuations re-rated higher from significant step-ups in profitability,” Rangan opined.

Accordingly, Rangan rates CRM shares a Buy while his $300 price goal suggests they may double in value over the approaching yr. (To look at Rangan’s track record, click here)

Rangan is the Street’s biggest CRM bull but loads of other analysts are backing his case; based on 26 Buys vs. 9 Holds and 1 Sell, the stock receives a Moderate Buy consensus rating. At $189.25, the typical goal makes room for 12-month gains of ~27%. (See CRM stock forecast)

T-Mobile US, Inc. (TMUS)

From one giant to a different. American wireless network operator T-Mobile US is the country’s second-largest wireless carrier and anticipated to see out 2022 with the client count reaching 113.6 million. The corporate also prides itself with having America’s sole nationwide stand-alone 5G network, positioning it to be the 5G leader. T-Mobile’s market cap exceeds $186 billion and in sharp contrast to many other mega caps, that only grew in 2022’s bear.

The shares posted gains of 21% over the course of the yr, boosted by strong earnings. Within the last reported quarter, Q3, the corporate posted EPS of $0.40, which handily beat the $0.26 consensus estimate. The corporate also delivered its highest ever net additions for postpaid accounts (394,000).

The outlook was pleasing too, with postpaid net customer additions for the yr anticipated to be within the range between 6.2 million and 6.4 million, above the previous guidance for six.0 million to six.3 million. In actual fact, firstly of the month, the corporate released preliminary results for 2022, which showed that it can attain 6.4 million total postpaid customers, exceeding the high end of that guide. For Q4, the corporate delivered postpaid net customer additions of 1.8 million, a feat that when combined, rivals AT&T and Verizon didn’t even manage.

That’s the kind of stuff Goldman’s Brett Feldman thinks makes TMUS a ‘Top Pick’ in 2023 even when taking into account last yr’s gains.

“Despite material outperformance in 2022, we proceed to see TMUS as essentially the most attractive large cap growth stock in telecom and cable,” the analyst said. “Key catalysts that we see in 2023 include durable postpaid phone net adds (3mn vs. 3.1mn in 2022), even when sector growth slows, owing to ongoing churn improvement; sustained growth in core adjusted EBITDA (10% vs. 12% in 2022E) as merger (2020’s merger with Sprint) with synergies approach run-rate; and a near doubling in FCF/share as capex falls and buybacks ramp.”

To this end, Feldman rates TMUS shares a Buy, together with a $180 price goal. The implication for investors? Upside of twenty-two% from current levels. (To look at Feldman’s track record, click here)

Where do other analysts stand on TMUS? 14 Buys and 1 Hold have been issued within the last three months. Subsequently, TMUS gets a Strong Buy consensus rating. Given the $182.62 average price goal, shares could surge ~24% in the following yr. (See TMUS stock forecast)

Warner Bros. Discovery (WBD)

Onto our third Goldman suggestion, Warner Bros. Discovery, an organization that was formed as a merger of Discovery and WarnerMedia, after the latter was spun off by AT&T in April last yr. The media and entertainment giant has an enviable portfolio spanning across film and TV; Warner Bros. film and tv studios, DC Comics, HBO, CNN, Discovery Channel, the Cartoon Network, Eurosport, and many other offerings all fall under the WBD moniker with among the world’s most successful franchises akin to Harry Potter, Lord of the Rings and Friends amongst its offerings.

The brand new entity can also be combining its streaming services HBO Max and Discovery+, which together cater to almost 100 million paid subscribers. This launch is anticipated to happen within the spring.

The initial period following the merger was difficult and reflected in the corporate’s most up-to-date earnings, for 3Q22. Revenue fell by 10.6% from the identical period a yr ago to $9.82 billion, while missing the Street’s call by $520 million. EPS of -$0.95 fell a way wanting the -$0.45 anticipated by the analysts.

Following the readout, the shares took a beating, and overall they shed 61% in 2022. Nonetheless, the stock is off to a flying start in 2023, having already delivered returns of ~39%.

There’s more to come back, based on Goldman Sachs analyst Brett Feldman, who lays out the bullish case.

“We estimate that WBD is best positioned to drive EBITDA growth, ramp FCF and delever its balance sheet in 2023 because it pursues $3.5bn of merger synergies and relaunches its flagship streaming service,” Feldman said. “As such, while we expect investors to proceed to debate the long-term outlook for traditional media firms, we see the danger/reward skew for WBD as most engaging vs. its peer group with key execution catalysts (merger milestones, streaming relaunch) largely inside management’s control.”

These comments form the premise of Feldman’s Buy rating while his $19 price goal implies 12-month share appreciation of ~44%.

And what concerning the remainder of the Street? Based on 5 Buys and Holds, each, plus 1 Sell, the stock claims a Moderate Buy consensus rating. Going by the $16.28 average goal, investors might be sitting on returns of 23% a yr from now. (See WBD stock forecast)

To search out 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 text are solely those of the featured analyst. The content is meant for use for informational purposes only. It is vitally essential to do your personal evaluation before making any investment.

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