Investing

Goldman Sachs Out With Top Tactical Stocks to Buy for the Next 2 Quarters

Lee Jackson

Published: May 14, 2020 7:20 am

With earnings for the first quarter all but over, Wall Street analysts are turning their attention to the second and third quarters of 2020. Most agree the overall economy will have a horrible second quarter as unemployment peaks and economic metrics come in at some of the worst levels ever. The good news for investors is the gradual reopening of the country from the COVID-19 pandemic restrictions should at least restart the engines of growth.

In a new research report, Goldman Sachs derivative analysts focus on 12 top tactical trades in which they feel companies will exceed the current earnings estimates. Note that the report is designed for investors using call options for leverage and to take a position. Not all investors are well versed in call option trading, so we focused on the actual stocks themselves.

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The Goldman Sachs team noted this in the report:

The complexity of the current economic environment makes it unusually important to focus on company level forecasts, in our view. Collaborating with analysts across our Americas Coverage, we highlight 12 stocks where our analysts have an out-of-consensus view that estimates are likely to be revised upward over the coming months.

We screened the list of the top stocks to buy in the tactical trade group and found five that look like outstanding ideas for the next six months. We skewed to the more conservative picks, as the market is expensive and has had a big “melt-up” rally off the March lows, which may be on the verge of rolling over. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Allstate

Insurance companies tend to do well regardless of the economy, and this industry giant may be an outstanding pick-up for investors. Allstate Corp. (NYSE: ALL) is the largest publicly traded personal lines insurance company, with about 12% of the personal lines market (one in eight households).

Allstate is primarily a direct writer. Besides a full array of personal lines P/C products (preferred, standard and nonstandard auto insurance, and homeowners’ insurance), the company also offers life insurance and annuity products.

Shareholders receive a 2.35% dividend. The Goldman Sachs price objective for the shares is a whopping $124. The Wall Street consensus target price is $116.27. Allstate stock closed Wednesday down almost 6% to $92.08 a share.

Baxter International

This top health care play is a very solid stock to own, with hospitals and doctors ready to focus on existing condition patients. Baxter International Inc. (NYSE: BAX) provides a portfolio of renal and hospital products.

Its Renal segment provides products and services to treat end-stage renal disease, irreversible kidney failure and acute kidney therapies. This segment offers a comprehensive portfolio to meet the needs of patients across the treatment continuum, including technologies and therapies for peritoneal dialysis, in-center hemodialysis (HD), home HD, continuous renal replacement therapy and additional dialysis services.

The Hospital Products segment manufactures intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, inhalation anesthetics and biosurgery products. This segment also provides products and services related to pharmacy compounding, drug formulation and packaging technologies.

Shareholders receive a 1.15% dividend. Goldman Sachs has a $93 price target, while the consensus price objective is $97. Baxter stock closed Wednesday at $85.55.

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This is one of Wall Street’s white-glove firms, and it may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.

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Earlier this year, the Wall Street investment bank agreed on a $13 billion purchase of discount brokerage E-Trade. With 5.2 million customers, it was once a revolutionary platform that “helped usher in a dramatic shift among financial services firms” and fueled the rise of indexes and exchange-traded funds, making investing vastly easier for do-it-yourself investors. The deal is still expected to close.

Morgan Stanley stock investors receive a 3.78% dividend. The $47 Goldman Sachs price target is in line with the $47.02 consensus target. Shares closed Wednesday at $36.99, down close to 4% on the day.

T-Mobile

This company finally completed a long and arduous pursuit of former rival communication company Sprint. T-Mobile US Inc. (NASDAQ: TMUS) provides wireless services for branded postpaid, prepaid and wholesale customers in the United States, Puerto Rico and the United States Virgin Islands.

The company offers voice, messaging and data services. It also provides wireless devices, including smartphones, wearables, tablets and other mobile communication devices, as well as accessories and wireline services. It offers its services under the T-Mobile, Metro by T-Mobile and Sprint brands.

Now that the Sprint deal finally has closed, it could bring about a seismic shift in the mobile world. T-Mobile and Sprint’s combined assets could jump-start their 5G ambitions, pushing the industry further into the next-generation technology. They’ve also said they’ll lock in consumer prices for at least three years. As part of all the wrangling, Dish Network will become the fourth national carrier, giving consumers a new alternative.

Goldman Sachs has set a $123 price objective. The much lower consensus target is $101.05, and T-Mobile closed most recently at $92.78.

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United Rentals

This stock has rallied well of the March lows but still has solid upside potential, as the gear and equipment they provide is always needed. United Rentals Inc. (NYSE: URI) is the largest equipment rental company in the world.

It has an integrated network of 876 rental locations in 49 states and 10 Canadian provinces. With approximately 12,200 employees, the company serves construction and industrial customers, utilities, municipalities, homeowners and others.

United Rentals offers for rent approximately 3,300 classes of equipment with a total original cost of $8.7 billion. Trading at 10.5 times trailing 12-month earnings, the stock remains very cheap. With the economy opening back up, rentals should increase exponentially.

The Goldman Sachs price target is a lofty $154. The consensus target is $134.83, and United Rentals stock closed on Wednesday at $108.77.

The stock market is a forward-looking instrument, so buying stocks of companies that the analysts predict will post higher than expected earnings could be a solid strategy now. With that noted, volatility will remain in place, and we are a long way from the economy turning around, so caution should be used in the size of positions taken.