Goldman Sachs: 3 Stocks to Snap up on the Dip


Stock markets saw another spectacular drop yesterday, which come on the heels of the Federal Reserve interest rate cut, among other governmental actions to combat the COVID-19 panic – and it’s a clear sign that traders are not going to be easily reassured in the current crisis. With so many businesses shuttered or on part time as communities struggle with large-scale and indeterminate lockdowns and quarantines, the only certainty is that economic effects will be widespread – and the impact cannot yet be seen. In a hopeful development, President Trump, in yesterday’s statement from the White House, announced that the Federal government is green-lighting clinical trials on vaccine development.

We can’t predict the future, but one thing is clear: the market volatility has not ended, nor is it likely to soon. Traders will have to put up with steep gains and losses – although hopefully not as severe as yesterday’s 3,000-point drop in the Dow Jones average. But with these losses comes an opportunity: plenty of otherwise sound stocks will be pushed to discount prices by the general bear market, and for savvy investors, this may be the right time to buy in.

So with this in mind, we extracted three intriguing stock ideas from Goldman Sachs’ basket list. As you will see, Goldman estimates big upside potential of over 70% for each of the stocks covered below. And to get an even better idea of each stock’s outlook, we use TipRanks data to understand the overall Street consensus. This makes it easy to decide whether these stocks make compelling investing propositions right now. Overall, these stocks offer investors a rare opportunity to find high growth potential alongside a discount entry price.

Spirit AeroSystems Holdings (SPR)

We’ll start in the aerospace industry, with a holding company whose subsidiaries are active in the design and manufacture of fuselages, wings, and propulsion for both the military and commercial aircraft sectors. A Spirit subsidiary builds the fuselage of the Boeing 737, and the company has been hurt by the ongoing grounding of the 737 MAX-8 airliners, but the parent company has its hands in enough other pots (including the Airbus A350) to remain viable.

In his upgrade note on this stock, Goldman analyst Noah Poponak writes, “The MAX situation and the COVID-19 impact to Aerospace both certainly present risk to SPR. But at the current price, we believe risk/reward is now skewed substantially to the upside around those and other inputs. If the MAX and COVID-19 are resolved relatively favorably, SPR could reach $9/share in free cash in 2023 […] To us that appears to price in many negative scenarios outside of the tail related to the MAX and COVID-19.”

In line with this upbeat long-term view, Poponak raised SPR to a Buy rating. His $58 price target suggests room for a 116% upside potential. (To watch Poponak’s track record, click here.)

Overall, this stock’s Moderate Buy consensus rating is based on a total of 14 reviews, which include 4 Buys and 10 Holds. Shares are priced low, at $26.85, and the average price target of $68.23 implies room for 154% growth in the coming 12 months. (See Spirit AeroSystems stock analysis on TipRanks.)

Amarin Corporation (AMRN)

Amarin is a cutting-edge biotech with an ace up its sleeve: an approved product on the market. The company produces Vascepa, which was approved in 2012. Vascepa is based on fish oils, specifically Omega-3 fatty acids, and is marketed as a preventative treatment for hypertriglyceridemia, a cause of heart disease in adults.

Amarin has reported strong sales of Vascepa, on the order of $425 million for full-year 2019 numbers. The company’s guidance for 2020 puts sales in the range $650 million to $700 million, a strong gain that will help offset predicted increases in operating expenses. AMRN’s earnings and revenues are on a positive trend, having beaten the estimates in Q4; meeting the Vascepa sales figures this year will help continue that move.

Writing on the stock for Goldman, 4-star analyst Paul Choi sees Amarin achieving just that. The analyst says of the company’s prospects going forward, “Last December, Vascepa was approved for an expanded label that is larger than we had previously initially expected and now includes patients with both established cardiovascular risk and diabetes… We estimate that this is a population of nearly nine million eligible patients in the US, which compares to the three million patients previously eligible based on the initial Vascepa label… We now expect AMRN to beat consensus revenue estimates and AMRN’s guidance in 2020.”

“With the recent pullback in AMRN, which has been driven by both idiosyncratic and macro factors, we now see its valuation as compelling in the midst of its ongoing launch of Vascepa in the REDUCE-IT population,” the analyst concluded.

As a result, Choi bumped his stance on AMRN from Neutral to Buy, and sets a $28 price target. His target indicates confidence in a powerful 173% upside potential, underscoring the great profit potential inherent it the stock. (To watch Choi’s track record, click here)

All in all, Amarin has 8 Buy-side ratings given in recent weeks. These are partially balanced by 2 Holds and 1 Sell, making the analyst consensus view a Moderate Buy. AMRN shares closed yesterday at $10.26, and have a 173% upside potential based on the average price target of $28.10. (See Amarin stock analysis on TipRanks)

Valvoline, Inc. (VVV)

While alternative fuels and electric drives are all the rage in automotive development, the fact is that our cars still run on petroleum products. And even if they are switched to fully electric systems, they’ll still need lubricants – which are also petroleum products. Valvoline is a major producer of automotive oil and lubricants, as well as fuel additives and coolants. The company is the second largest provider of oil change services in the US, with over 1,000 locations and more than 10% market share.

While oil change service may sound pedestrian, it is a necessity for any commuter – and the company’s strong position in an essential niche is reflected in its quarterly numbers. Starting fiscal year 2020, VVV reported Q1 earnings and revenues both above the forecasts. EPS, at 35 cents, beat by 20%, while the $607 million in revenues were 4.6% ahead of estimates. Both EPS and revenues also showed substantial growth year-over-year.

Of the stocks in this list, only VVV offers investors a worthwhile dividend. The 11.25-cent quarterly payment annualizes to 45 cents and gives a yield of 3.2%. While modest, that yield is more than 50% greater than the average among S&P listed companies, and now that the Fed has slashed rates down below 0.25%, VVV dividend looks even better.

Goldman’s Jason English, in his review of this stock, writes, “We believe VVV’s Quick Lubes can maintain a double-digit sales growth rate in the years ahead… VVV has consistently delivered high-single-digit to low-double-digit SSS growth over the past three years, placing it in the top tier among not only Auto Part Service providers, but also among all retailers.”

English translates his upbeat view of VVV’s forward prospects into numbers with a $24 price target – which implies an upside of 71%. It’s not surprising, then, why he upgraded the stock from Neutral to Buy last Friday. (To watch English’s track record, click here)

Net net, with 2 Buy-side rating and 2 Holds, Valvoline’s analyst consensus view is a Moderate Buy. The stock’s share value is a discounted $14.01, and the average price target of $22.67 suggests that there is room here for 61% growth in the next 12 months. (See Valvoline’s stock analysis on TipRanks)

 

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