Goldman Sachs: 3 Stocks to Buy Despite Recession Fears

A recession could be headed your way, warns Goldman Sachs — and that’s okay.

In a recent report, Goldman private wealth management chief investment officer Sharmin Mossavar-Rahmani put the chances of a recession hitting the U.S. in 2020 at somewhere between 25% and 30% — triple the risk seen three years ago. Despite the risk, though, there’s also still opportunity to profit from owning the right companies.

Jobs numbers in the U.S. remain strong. GDP growth is expected to end this year at 2.3%, then slow in 2020, but still remain above 2% — not negative at all. And in the event a recession does not occur, 86% of the time, says Mossavar-Rahmani, stocks continue to go up!

So which stocks does Goldman Sachs recommend that you buy “just in case?”

Utilizing the Stock Screener at TipRanks, We’ve found three stocks receiving “buy” ratings from most analysts in general, and endorsed by Goldman Sachs in particular. Let’s take a closer look:

Stitch Fix (SFIX)

Stitch Fix is a clothing by mail subscription service, mailing its customers monthly deliveries of clothes, shoes, and accessories, which customers can then peruse and either accept (and pay for) or mail back (and not). But while the business model may bear a whiff of “Columbia House CDs,” it’s doing a whole lot better than its predecessor in concept.

With profit margins intact, guiding for 11% to 13% EBITDA margins, 5-star Goldman Sachs analyst Heath Terry sees SFIX stock as attractively priced “below the ecommerce sector average despite faster revenue and EBITDA growth.” Terry rates Stitch Fix a ‘buy’ with a $24 price target — implying 20% upside from today’s prices. (To watch Terry’s track record, click here)

Terry points out, Stitch Fix nailed analyst estimates with sales of $432 million. Adjusted for a slightly longer quarter than Q4 2018 had in it, Terry says grew 26% year over year, and management’s “FY20 revenue guidance of +20.5% -22.5% … bracketed consensus” expectations as well.

Client rolls are expanding at a “stable” rate, “spend per client” is also growing nicely, and the company is expanding its business both internationally (to the UK) and categorically, as Stitch Fix promotes subscriptions for children’s clothing.

When looking at Wall Street’s stance, Terry is not the only bull, as TipRanks analytics showcase SFIX as a Buy. Out of 9 analysts polled in the last 3 months, 5 rate SFIX a ‘buy’, while 4 say ‘hold’. The 12-month average price target stands at $26.89 marking an 37% upside from where the stock is currently trading. (See SFIX’s price targets and analyst ratings on TipRanks)

Wynn Resorts (WYNN)

Not interested in “gambling” on whether consumers will take a fancy to clothing subscriptions? Perhaps a more straightforward gambling play is more to your taste? Here, Goldman analyst Stephen Grambling offers up Wynn Resorts, the Las Vegas-based casino operator that now gets 75% of its revenues from the island of Macau in… China!

At present, more than half of Wynn’s physical assets still call the United States home, and the company is investing heavily in “major capital projects” in Boston and Las Vegas, which have been a drain on cash. But as Grambling points out, free cash flow at Wynn “is set to inflect” as these projects come to completion, even as the company’s Macau properties have “potential for upside,” helping to pull Wynn stock up from a “near-trough valuation” to as high as $155 a share. (To watch Grambling’s track record, click here)

Indeed, of all the casino operators that Goldman Sachs covers, Grambling believes Wynn has the best potential for upside — as much as 46%, versus 33% for Las Vegas Sands for example. With a 14-ish P/E ratio and a 14%-ish projected earnings growth rate on the Street — and a strong 3.6% dividend yield to boot — the analyst believes Wynn is poised to outperform.

Overall, Wall Street sizes up Wynn Resorts as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the Las Vegas gaming and hospitality giant. In the last 3 months, WYNN has received 7 bullish ratings versus 3 analysts hedging their bets. The 12-month average price target of $135.20 reflects a potential upside of 24%. (See WYNN’s price targets and analyst ratings on TipRanks)

Seattle Genetics (SGEN)

Switching gears (rather dramatically I should say) from consumer-focused stocks to the bright, shiny new world of biotech, Goldman Sachs’ third buy-rated pick today is Seattle Genetics, a rising force in the world of oncology.

Goldman Sachs analyst Salveen Richter rates SGEN a “buy” with a $100 price target (the stock costs $84 today) on hopes that increased use of Advetris to treat Hodgkin’s lymphoma and peripheral T cell lymphoma will prove to be “pipeline drivers to cement SGEN’s transition into a multi-product oncology company.” (To watch Richter’s track record, click here)

Richter further expects new drugs enfortumab vedotin to receive FDA approval as early as March 2020, and is “positive” on the prospects for two more drugs in late-stage clinical trials, “tucatinib” for treating metastatic breast cancer and tisotumab vedotin for use against metastatic cervical cancer. Those clinical results are due out before the end of this year, and in the first half of next year, respectively. And Seattle Genetics has a nice pipeline of similarly tongue-twisting drug candidates waiting in line behind those.

In terms of dollars and cents, of course, there’s little here to attract value investors. At least, Richter doesn’t see any potential for GAAP profits through at least 2021. (On the other hand, the consensus on Wall Street is that S-Gen will in fact earn a profit in 2021). Whichever way things play out on the profit front, revenue growth alone may be enough to support Seattle Genetics stock, with Richter projecting a rough doubling in sales to $1.29 billion by 2021.

That’s good enough for a “buy” rating in Goldman Sachs’ estimation — and a 19% profit for investors buying at today’s prices.

The initial word out on the Street echoes Richter’s bullish conviction on the drug maker, as TipRanks analytics showcase SGEN as a Buy. Based on 15 analysts polled in the last 3 months, 10 are bullish on the stock, while 4 remain sidelined and one (Merrill Lynch) is bearish. (See SGEN’s price targets and analyst ratings on TipRanks)


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