GOLDMAN SACHS: Buy these 25 beaten-down stocks all poised to jump more than 18% from current levels

NYSE trader

Using revisions to 2021 earnings as a guide, David Kostin — the chief US equity strategist at Goldman Sachs — highlights 25 stocks with wide disparities between implied and actual price movements over the last three months.
Revisions to 2021 earnings estimates have been positively correlated with returns, however, some stocks and sectors have been more sensitive to changes than others.
The 25 stocks listed below have made smaller price gains than the revisions to their 2021 earnings would imply. Goldman says that’s created significant upside potential.
Click here for more BI Prime stories.

If there’s one thing investors abhor, it’s ambiguity. And today’s market environment is teeming with it.

“Given uncertainty in the 2020 recovery path, investors have shifted focus to 2021 earnings,” said David Kostin, the chief US equity strategist at Goldman Sachs. “Consequently, share prices have moved tightly alongside FY2 consensus EPS revisions.”

Below is a chart that Kostin provided showing the close relationship between price and 2021 earnings revisions from February 19 to May 19.

He added: “The explanatory power of FY2 earnings revisions currently ranks in the 95th percentile since 2005 or greater in 8 of 11 sectors and S&P 500.”

The chart below reflects the correlation between sector price return from February 19 to May 19 and 2021 earnings revisions.

Clearly, some sectors have been more responsive to earnings revisions than others — and Kostin thinks he knows why.

“The share prices of firms in some sectors have been much more sensitive to EPS revisions than others,” he said. “Stronger correlations of stocks within some sectors may suggest that the market is overlooking idiosyncratic fundamentals in favor of sector dynamics.”

Below are two charts Kostin provided to demonstrate this disparity.

Here’s how Kostin went about finding the companies who had prices widely disconnected with implied movements.

“Based on the regressions discussed above, we calculate each stock’s implied price change based on its 3-month EPS revision and subtract its realized price change to determine the percentage point change necessary to close the implied vs. actual price return gap,” he said.

Listed below are 25 stocks that have generated smaller returns than implied given the revision in 2021 earnings estimates. They are listed in ascending order of upside to price target.

SEE ALSO: MORGAN STANLEY: Buy these 23 high-growth stocks that look poised to deliver market-beating returns over the long term

25. Globe Life

Ticker: GL

Sector: Financials

Price change to close gap (implied vs. actual): 18%

Source: FactSet, Goldman Sachs Global Investment Research

24. Hartford Financial

Ticker: HIG

Sector: Financials

Price change to close gap (implied vs. actual): 18%

Source: FactSet, Goldman Sachs Global Investment Research

23. PVH

Ticker: PVH

Sector: Consumer Discretionary

Price change to close gap (implied vs. actual): 19%

Source: FactSet, Goldman Sachs Global Investment Research

22. Walgreens Boots Alliance

Ticker: WBA

Sector: Consumer Staples

Price change to close gap (implied vs. actual): 19%

Source: FactSet, Goldman Sachs Global Investment Research

21. Vornado Realty Trust

Ticker: VNO

Sector: Real Estate

Price change to close gap (implied vs. actual): …read more

Source:: Business Insider

      

(Visited 1 times, 1 visits today)

BTS Feeling "Dynamite" at 2021 GRAMMY Awards

The performers admit they're honored to be the first K-pop group nominated at the GRAMMYs and send a special message to their Army fandom. Watch!

Leave a Reply

Your email address will not be published.