A look at Goldman Sachs’ “conviction buy” stocks in recent weeks has revealed a number of names that its analysts say have serious potential. The Wall Street bank’s Conviction List comprises its top buy-rated stocks that it expects to outperform. Here are five of them: Baidu Goldman in a July 16 note said it has added Chinese Internet search giant Baidu to its regional conviction list. “We view Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme,” it said. The bank’s analysts said that Baidu is on track for steady search advertising recovery amid its high exposure to offline small and medium enterprises. They added that they expect key catalysts in the second half of the year, such as regulatory approval for large language models (articifical intelligence programs trained with extensive amounts of data). “The market is now pricing in limited value for Baidu’s AI initiative: the stock outperformed BABA / Tencent by 10-15% YTD,” Goldman analysts wrote. “We are turning more constructive than before on Baidu’s positioning for the secular AI trend, and we expect the market will begin to more appreciate its AI business once it starts to generate user traffic and then achieve revenue scale.” Goldman gave Baidu’s U.S.-listed shares a 12-month price target of $197, and its Hong Kong-listed shares a price target of 193 Hong Kong dollars. Both price targets imply upside of around 37%. Shift4 Payments American payment processing company Shift4 Payments is also on Goldman’s conviction list. The company appeared on a screen of stocks set for growth at a reasonable price, in a July 13 note by the bank. Goldman’s analysts identified stocks they say have at least 10% sales CAGR (compound annual growth rate) from 2022 to 2025, and where the price-earnings-growth ratio is below 1.0. They said Shift4 Payments is well positioned to compete with new entrants to the small and medium businesses payments landscape. “Its refreshed, modern restaurant POS [point of sale] platform and new verticals should drive market share growth,” Goldman analysts wrote. Johnson Controls International Goldman also likes American building products company Johnson Controls International, which appeared on its July 13 screen of stocks set for growth with underappreciated margin expansion. The bank identified stocks that its analysts expect to deliver at least 5% sales growth in 2023 and 2024, positive incremental operating margins in each year, and operating margin expansion of at least 150 basis points between 2022 and the end of 2024. “Favorable end-market exposure to education and ‘clean’ buildings, along with cost savings initiatives should drive both growth and margin expansion,” the bank said of Johnson Controls. In the longer term, Goldman said the firm’s service business offers the potential to create more growth and margin expansion opportunities — ultimately contributing to “solid” free cash flow. Warner Bros Discovery Goldman said in a July 18 note that it sees the risk/reward skew for Warner Bros Discovery as the most attractive versus its peers, saying the stock is its top pick in the media sector. It highlighted that the firm repaid more than $1 billion of debt in the second quarter, funded by its free cash flow. “This implies that despite the challenging operating environment WBD is pacing ahead of its 1H23 FCF target,” Goldman wrote. “As such, we maintain our outlook for WBD to achieve material balance sheet delevering in 2023 and support material upside to the equity.” Goldman gave Warner Bros Discovery, which is on its conviction list, a price target of $20, or potentially more than 50% upside. First Solar Goldman named First Solar in its screen of buy-rated stocks where its analysts are out-of-consensus and the majority of Wall Street is neutral or sell-rated on. “These names appear underappreciated by the market and could generate alpha for investors with a contrarian view,” it said in the July 13 note. First Solar is on the bank’s conviction list, with a potential upside to price target of 40% from its price of $194.96 as of July 12, according to the analysts. — CNBC’s Michael Bloom contributed to this report.
These 5 stocks are on Goldman’s ‘conviction buy’ list — and it gives one more than 50% upside
