Investing

Huge Sell-Off Could Lead to Big Gains: 5 Goldman Sachs Stocks to Buy Now

Lee Jackson

Published: June 15, 2020 7:30 am

The massive rout in the market last Thursday had many people ready to dive back into the cash bunkers. The Dow Jones industrial average lost a stunning 6.9% and the S&P 500 fell 5.9% on Thursday. While Friday’s bounce back was a positive, you can bet that worried investors are hoping this isn’t a return to the high-velocity losses of February and March.

There is some positive news and history for investors to consider. Thursday’s sell-off was a 5 standard deviation move, something that has only happened 15 times since 1990. Jefferies strategists took a look at past performance, and after massive selling sessions like last Thursday, the S&P 500 averaged a 6% gain over the next 60 days. If you remove the skewed numbers from 2008, which had multiple massive sell-offs, the 60-day gains jump to 19%.

We decided to screen the Goldman Sachs research universe for Buy-rated stocks that the firm is raising price targets on. We found five that look like solid ideas for growth investors with a degree of risk tolerance. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Analog Devices

This stock could very well continue to benefit from an increase in information technology and upcoming 5G spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal-processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide.

The company offers signal-processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.

Analog Devices has among the best end-market exposure, with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the past few years like Linear Technology and Hittite Microwave should provide revenue and additional cost synergies that are still coming.

Analog Devices stockholders receive a 2.2% dividend. Goldman Sachs raised its price target to $138 from $120. The Wall Street consensus price target is lower at $126.41. The shares closed Friday’s trading at $118.41 apiece.

D.R. Horton

This is one of the highest volume builders in the United States and a top pick at Merrill. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country, delivering roughly 57,000 homes in 2018. The company is positioned in 90 metropolitan markets in six major regions and develops single-family homes primarily for first-time and move-up buyers.

Approximately 80% of revenue comes from the Southeast, South Central and West regions, all of which continue to see very solid growth. The company also provides mortgage financing and title agency services to homebuyers.

D.R. Horton boasts some of the highest quality and fastest growth potential via entry-level exposure and competitively advantaged market share, and it can weather cost pressures with a strong free cash flow profile that provides optionality.

Shareholders receive a 1.3% dividend. The $51 Goldman Sachs price objective was raised to $62, while the consensus target price was last seen at $55.75. The last trade for D.R. Horton stock hit the tape at $54.00 on Friday.

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This venerable car company could benefit from an improving economy and the return to work. General Motors Co. (NYSE: GM) is the world’s largest automaker, with annual volume of almost 10 million units. The company reports its operations in four regions, North America, Europe, South America, and International. The company now relies on only four core brands in its key North American segment (Chevrolet, GMC, Buick and Cadillac).

GM sells cars, crossovers and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies and governments. In addition, it offers connected safety, security and mobility solutions and information technology services. The company, through its subsidiary, General Motors Financial, provides automotive financing services.

The Goldman Sachs analysts just upgraded the venerable auto manufacturer’s stock to a Buy rating on Friday, and they raised the price target to $36 from $25. The posted consensus target is $34.76, and General Motors stock ended last week at $27.96 a share, after almost 6% gain on Friday.

Marathon Petroleum

This is a solid way for more conservative accounts to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is currently one of the largest independent petroleum refining and marketing companies in the United States. It operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, the company operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Despite a plan to spin-off Speedway, the company announced in late February a plan to invest $550 million in the chain. The investment will focus primarily on converting convenience stores the company added to its portfolio through several acquisitions over the past two years, notably, the strategic combination with San Antonio-based Andeavor in the fall of 2018, to Speedway’s branding and systems.

Note that the robust 6.57% dividend yield could be trimmed. The Goldman Sachs price target was lifted from $39 to $44, which is still lower than the $46.43 consensus target. Marathon Petroleum stock closed on Friday at $36.62 per share.

Microchip Technology

Shares of this huge Internet of Things benefactor and have been very strong recently. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.

The company acquired Microsemi in June of 2018, and SunTrust believes that purchase and earlier acquisitions afford Microchip Technology ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).

Investors receive a 1.67% dividend. The Goldman Sachs price target was raised to $121 from $103. The posted consensus price objective is $114.69, and Microchip Technology stock was last seen changing hands at $99.63 a share.

These five top stocks are Buy rated and also saw their price targets raised at Goldman Sachs. We could see more volatility come into the market, as the CBOE Volatility Index (VIX) moved sharply higher last week during the massive risk-off day, so buying partial positions to make sure the coast is clear as the quarter runs out could make the most sense.