Goldman Sachs released its 'directors' cut' of high-conviction stock picks.
Goldman Sachs released its list of high-conviction stocks — with a new twist. The firm sourced buy-rated stocks from its U.S. research analysts. What makes this list unique from the typical top picks list is members of Goldman's Investment Review Committee were the ones choosing the names, adding a second layer of analysis.
"This new 'Conviction List — Directors' Cut' is designed to provide investors with a curated and active list of 20-25 of what we believe to be our most differentiated fundamental Buy ideas across our US stock coverage," Steven Kron, director of Americas equity research, wrote in the Thursday note. Take a look at some of the names that made the list and where Goldman sees them going forward. Bath & Body Works is a "turnaround story with new management," according to the firm. Analyst Kate McShane expects the company to outperform with topline growth coming above conservative guidance. Category expansion, improved online presence and momentum from its loyalty program introduced in 2022 should drive the company's growth story, the firm found. Goldman expects shares to have 42% upside over the next 12 months. Shares are down about 16% year to date. Pharmaceutical giant Merck also made the directors' cut. While shares are flat in 2023, the firm estimates upside of about 17% in the coming months. "MRK is growing its capabilities beyond its strong oncology and vaccine franchises to develop a meaningful runway for growth in immunology and cardiovascular treatments, a progression that should alleviate concerns about a patent cliff in 2028," according to Goldman. Analyst Chris Shibutani noted while Merck's patent for its prominent oncology treatment Keytruda is set to expire in 2028, the company's base business remains strong. Goldman highlighted Shibutani's revenue and earnings per share forecasts for 2023 are higher than guidance and Wall Street. The firm anticipates Amazon shares surging 37% in the next 12 months. The e-commerce platform is on a rebound, and the Amazon Web Services cloud business will enjoy tailwinds from artificial intelligence, according to analyst Eric Sheridan. "Look for AMZN to continue to deliver strong revenue and margin performance over a multi-year investment cycle as eCommerce margins normalize. … and as AWS can still benefit from a long-tailed structural growth opportunity in the shifting needs of enterprise customers that can be coupled with an emerging opportunity around an AI-driven computing cycle," Goldman noted. The tech giant's scale, platform breadth, category diversification and end-market exposure will further fuel its upside opportunity in the years ahead, according to Sheridan. Finally, Warner Bros. Discovery is a media name on the list. The bank estimates shares rallying 86% from its current levels, putting it in the top five in estimated upsides. "WBD represents something of a unique financial proposition in traditional Media: a company that can materially grow EBITDA over the next 2-3 years through synergy realization from the still-recent merger of WarnerMedia and Discovery — growth that should drive rapid deleveraging that appears to be underappreciated by investors," the firm noted. According to analyst Brett Feldman, the company's new streaming service, Max , a combination of HBO Max and Discovery+, is an additional catalyst for growth. — CNBC's Michael Bloom contributed to this report.
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