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Goldman Sachs Has 5 Stocks That Could Explode Higher on Q3 Earnings
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The earnings reporting onslaught for the third quarter begins this week and, while the economy certainly has improved during the quarter, there is still the pandemic overhang that could dampen the results from many of the top companies. Toss in the additional issues that the market is facing, not the least of which is perhaps the most important election since 1860, and there is certainly the potential for heightened volatility.
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A new Goldman Sachs research report notes that the options market is implying a 5.8% earnings-day move for the average stock in the S&P 500, which is higher than the 5.5% long-term average. The report also noted this:
Our analysts’ weighted average price target implies +7% upside over the next 12 months to S&P 500 stocks vs 8 year average of +9% upside implied. In light of obvious economic uncertainties built into estimates, we view this upside as an encouraging sign of fundamental support. In this report, we leverage our equity analysts’ fresh estimates and qualitative comments to identify the 25 most out-of-consensus opportunities from our Americas coverage.
Five high-profile names make the cut here, and all could offer some serious upside for investors with a touch more risk appetite. While all five are rated Buy at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Chipotle Mexican Grill
Despite numerous issues over the past few years, this remains a favorite destination for those looking to eat out, and the stock is a Goldman Sachs Conviction List pick. Chipotle Mexican Grill Inc. (NYSE: CMG) operates more than 2,400 fast-casual Mexican restaurants offering freshly made burritos, tacos, burrito bowls and salads.
Chipotle Mexican Grill is 100% company operated and runs average unit volumes much higher than peers. Goldman Sachs is very positive and noted this:
Goldman Sachs Restaurants analyst Katherine Fogertey sees 11% upside to Buy-rated over next 12 months. Her 3Q20 EPS estimate is 32% above consensus on the back of strength in digital momentum, high brand engagement and tailwinds from menu innovation and favorable commodity prices. She notes, the company continues to register strong growth in its mobile web and app usage, which continues to be a key differentiator for restaurants given still-limited dining room capacity and potential customer aversion for on premise dining in the near term.
The Goldman Sachs price target for the shares is $1,425, while the Wall Street consensus target is $1290.44. Chipotle Mexican Grill stock traded early Tuesday at $1,274.01.
EOG Resources
This leading energy company is also a Goldman Sachs Conviction List pick. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China. The company’s principal producing areas in the United States are located in New Mexico, North Dakota, Texas, Utah and Wyoming.
Goldman Sachs is very positive on energy for 2021:
Goldman Sachs Exploration & Production analyst Brian Singer sees 52% upside EOG over the next 12 months with EPS estimates significantly above consensus for the current quarter and over the next 4 quarters. He believes shares are oversold and do not reflect the company’s sustainability LEADership in Leverage, Earnings, Assets and Decarbonization. EOG shares have sold off on risk around post-election federal land access where EOG has greater interest than other Permian peers.
Shareholders receive a 3.93% dividend. Goldman Sachs has a $57 price target, but the consensus target is up at $63.97. EOG Resources stock traded at $39.25 a share Tuesday morning.
24/7 Wall St.HubSpot
This stock has rallied large, but the analysts see more upside. HubSpot Inc. (NYSE: HUBS) is a cloud-based provider of inbound marketing tools such as website content management, blogging tools, email campaign, search engine optimization, social media monitoring and management, customer relationship management and others for small businesses and midsized companies.
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The company’s tools provide a single console for marketing professionals to generate new customer leads, convert leads to customers and customers to repeat customers. The Goldman Sachs report noted this:
Goldman Sachs Software analyst Christopher Merwin is 8%/28% above consensus EBITDA for the next quarter/next 4 quarters. HubSpot has already seen healthy traction in Marketing Hub’s enterprise edition, and our analyst notes that this new product has found market fit with larger customers, filling in the gaps that were causing customers to migrate from the platform after reaching a certain scale.
The $290 Goldman Sachs price objective recently was raised to $332. The consensus target is $289.06, but HubSpot stock was trading at $324.24.
Raytheon Technologies
This stock is down a stunning 33% this year and also resides on the Conviction List. Raytheon Technologies Corp. (NYSE: RTX) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.
With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.
Last year, United Technologies and Raytheon agreed to merge their businesses to create a new aerospace and defense powerhouse. The two companies received unanimous approval from their respective boards, and the merger is finally complete, with the new company now called Raytheon Technologies.
The stock has lagged defense peers and offers solid upside. The report noted:
Goldman Sachs Aerospace & Defense analyst Noah Poponak has recently added the company to the Conviction list and sees 44% upside over the next 12 months. Noah believes that Raytheon Technologies Aerospace division is 45% exposed to the relatively stable aftermarket where the total aircraft in service are now down only 25% year-over-year despite the volatile situation that persists in the aerospace market due to COVID-19. He believes the recovery in global air travel could be quicker from here than broad expectations for a recovery by 2023-2024.
Shareholders receive a 3.14% dividend. Goldman Sachs has set a stunning $84 price objective. The posted consensus target is $78.05, and Raytheon Technologies stock traded at $59.70.
Take-Two Interactive Software
This top video game producer and has cashed in with some super-hot titles. Take-Two Interactive Software Inc. (NASDAQ: TTWO) develops, publishes and markets interactive entertainment solutions for consumers worldwide. The company offers its products under the Rockstar Games and 2K labels, as well as under Private Division and Social Point labels.
Take-Two develops and publishes action/adventure products under the Grand Theft Auto, Max Payne, Midnight Club, and Red Dead Redemption names through developing sequels, and it offers downloadable episodes, content and virtual currency, as well as releasing titles for smartphones and tablets. The company also develops brands in other genres, including the LA Noire, Bully and Manhunt franchises.
In addition, the company publishes various entertainment properties across various platforms and a range of genres, such as shooter, action, role-playing, strategy, sports and family/casual entertainment under the BioShock, Mafia, Sid Meier’s Civilization, XCOM series and Borderlands labels. It publishes sports simulation titles, comprising NBA 2K series, a basketball video game; the WWE 2K professional wrestling series; and the Golf Club. Additionally, the company offers free-to-play mobile games, such as Dragon City and Monster Legends.
The stock has been on fire, but the analysts remain very positive:
Goldman Sachs Video Games analyst Michael Ng sees 22% upside to Buy rated TTWO over the next 12 months. He believes the company should benefit from a robust content pipeline of 93 titles over the next 5 years. He notes long-term growth will be driven by its robust new game pipeline, managing and building live services, and strong catalog demand.
The Goldman Sachs price target is $199. The consensus target is $186.62, and Interactive Software stock was trading at $166.20.
These are five stocks for growth investors to buy in front of the third-quarter print that could surprise to the upside in a big way. Buying before earnings can be a risky game, so it may make sense to buy partial positions before the earnings report and fill in after the results are out, just in case there is a miss or bad guidance.
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