August has just started and Wall Street is already making adjustments to its list of stocks to buy, sell or hold. Goldman Sachs has made a rather strong rotation on its prized “Conviction Buy List” of its stocks to buy. These are each analyst’s top picks within their coverage universe and some have well above 20% in implied upside if these calls pan out as each analyst lays out their thesis.
Oggonomics would remind readers and investors that no single analyst call should ever act as the sole reason to buy or sell a stock. Another reminder needs to be made that no “Buy” ratings can come with any assurances or guarantees that the upside scenarios will come to fruition. These stocks could also fall.
One key consideration about Goldman Sachs versus most other large investment banking firms is that it only caters to large institutional investors and to high-net-worth clients. And the “Conviction Buy” as the firm’s top picks from each analyst make each call a “strategic bull” call by nature.
These are the four large changes seen in the August rotation from Goldman Sachs’ U.S. Conviction Buy List.
DOLLARS & GENERALS
Dollar General Corporation (NYSE: DG) was added to the US Conviction List in the August rotation, reiterating its Buy rating with a $169 price target. Dollar General shares had closed at $120.40 ahead of the call, with shares down 11.5% year-to-date and down an even larger 28.5% over the last year.
Goldman Sachs thinks that the more recent concerns regarding low-income consumers and discretionary spending concerns have been overdone. Ditto on Dollar General facing more competition as the company’s back-to-basics initiative will drive better results.
HOLY SMOKES! (OR NOT)
Philip Morris International Inc. (NYSE: PM) was added to the US Conviction Buy List, interesting considering that the former other half of Altria is focused on the ex-U.S. markets. Goldman’s official rating is Buy with a $126 price target (versus $115.16 prior close). Its shares have surged in the last month to 2024 highs with 23% gains YTD already.
They key driver behind the call is Goldman’s view that the market is not properly appreciating the growth opportunity as it innovates around smoke-free alternatives to combustible cigarettes. The team sees these as more profitable alternatives as well and position them better among peers with direct exposure to the large U.S. market. Oh, and there is the high 4.5% dividend yield to boot.
RATING THE RATERS
S&P Global Inc. (NYSE: SPGI) was added to the U.S. Conviction Buy List, with a formal Buy rating and a $561 price target (versus $484.73 prior close). One interesting aspect here is that shares f S&P were trading close to their 2024 highs. The stock has been up 11% YTD and up about 23% from a year ago.
The Goldman Sachs report points out that S&P is well positioned as a beneficiary of the current (and coming) strong new debt issue market as those new issues will all need ratings. Another boost is from revenue synergies via its IHS Markit acquisition.
GOT WOOD?
Woodward Inc. (NYSE: WWD) was added to the firm’s US Conviction List as the firm kept its Buy rating with a $201 price target. The stock had previously closed at $155.99, but what stands out here is the industrial components manufacturer had recently seen its shares fall more than 15% based on guidance after earnings. While aerospace sales were strong, weaker industrial growth was blamed, in part, due to slower demand from China.
Goldman Sachs sees Woodward delivering more products and components for planes at the same time the airplane cycle is about to take off. The firm expects Woodward to continue posting upside to consensus forecasts through this expansion cycle despite the recent drop.
THE BOOTS
Here are the four stocks Goldman Sachs removed from its U.S. Conviction Buy List as part of the August update.
- Constellation Brands, Inc. (NYSE: STZ)
- Edwards Lifesciences Inc. (NYSE: EW)
- Jefferies Financial Group (NYSE: JEF)
- Textron Corporation (NYSE: TXT)
