Investing
5 Goldman Sachs Conviction List Buys for a Fully Valued Market
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The current bull market is now 10 and a half years old, and although we have traded sideways for the past 18 months, almost every metric used to measure the markets value is flashing red. The problem for most investors is that interest rates remain at generational lows and will probably stay there for the foreseeable future. That keeps dividend-paying stocks high on many investors’ buy lists.
We screened the Goldman Sachs Americas Conviction List for dividend-paying stocks that are fairly priced and either have been somewhat out of favor or have lagged their peers. We found five that make good sense now for investors looking for total return potential.
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Baker Hughes
General Electric announced late last year it will be divesting a large part of its interests in this company, which could provide some life to the shares. Baker Hughes, a GE Company (NYSE: BHGE) is a provider of integrated oilfield products, services and digital solutions. Its products and services include upstream, midstream, downstream, industrial and digital.
The upstream unit includes evaluation, drilling, completions and production. Midstream enables the power and compression efficiency for liquefied natural gas (LNG) and pipeline and storage. Downstream builds reliability and safety into process operations that include refining and petrochemical and fertilizer solutions.
Baker Hughes industrial solutions offers power generation to advanced control systems and sensing technology that power industrial facilities. Digital transformation integrates data on an open platform with security and scale. This unit enables field services with real-time insights.
Baker Hughes shareholders receive a 3.05% dividend. The Goldman Sachs price target on the stock is $36, and the Wall Street consensus target is $29.52. The stock traded early Monday at $24.22 per share.
Bank of America
The company posted solid second-quarter results and is one of three banks on the Goldman Sachs Americas Conviction List. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally.
Bank of America operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform. It most recently posted revenues of $23.08 billion for the quarter ended June 2019, a 2% increase from a year earlier, and per-share earnings that topped the consensus estimate of analysts. Note that the bank has topped consensus revenue estimates three times over the past four quarters.
Bank of America pays investors a 2.45% dividend. Goldman Sachs has a price target of $32 on the shares, and the posted consensus target price is $33.19. The shares were trading at $29.33 Monday morning.
Chevron
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and LNG. Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
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With Permian production and asset disposals targets reset, many analysts feel Chevron can raise the dividend 20% and buyback 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline enabled by step change in capital efficiency driven by doubling Permian production.
Chevron shareholders receive an outstanding 3.83% dividend. The $144 Goldman Sachs price target compares with the $138 posted consensus price target, as well as the recent share price of $124.15.
Mondelez
This consumer sector giant makes good sense for conservative accounts. Mondelez International Inc. (NASDAQ: MDLZ) manufactures and markets snack food and beverage products worldwide. It offers biscuits, including cookies, crackers and salted snacks; chocolates, and gums and candies; powdered beverages and coffee; and cheese and grocery products.
Its primary brand portfolio includes LU, Nabisco and Oreo biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum; Jacobs Kaffee; and Tang powdered beverages.
Mondelez sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities, as well as through independent sales offices and agents.
Shareholders of Mondelez receive a 2.10% dividend. Goldman Sachs has set its price target at $64. The consensus target price was last seen at $61.37. The shares traded recently $54.56 apiece.
24/7 Wall St.Norfolk Southern
This top transport looks like a solid pick for the fourth quarter and 2020. Norfolk Southern Corp. (NYSE: NSC), together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products and finished goods.
The company also transports overseas freight through various Atlantic and Gulf Coast ports, provides logistics services and operates scheduled passenger trains. In addition, the company engages in the acquisition, leasing and management of coal, oil, gas and minerals; development of commercial real estate and telecommunications; and leasing or sale of rail property and equipment.
Norfolk Southern offers a 1.95% dividend yield. The Goldman Sachs price objective is $235. The posted consensus target is $207.26, but the shares were trading at $178.77.
These five top stocks from the Goldman Sachs Americas Conviction List offer investors a degree of safety and total return potential. They all make sense for long-term growth accounts looking to add to their equity weighting but wanting to avoid overbought and crowded trades.
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