Most investors will be more than happy to say goodbye to 2022, as the S&P 500, barring a massive rally to end the year, will end up with the worst return for the index since 2008. While not nearly as bad as the Nasdaq, it has still been a brutal year across every sector, with the exception of energy. While 2023 is likely to be better because at some point during the year the interest rate increases likely will end, the question is which stocks are set to rebound.
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A new Goldman Sachs research report notes that buying 2022 laggards could be the way for some big 2023 gains, if history is any guide. The report noted this:

Over the past 20 years, there has been a tendency for calendar-year laggards to outperform in the subsequent first quarters. This trend has held up in 13 of the 20 years since we started tracking the data, with laggards generating an average outperformance of 1.4% vs. the S&P 500 in the subsequent first quarter, and 53% of laggards outperforming in the subsequent first quarter. The outperformance has been more pronounced in the last two years, with 1Q of 2021 seeing record prior year laggard outperformance (+13.2% vs. the SPX and 80% hit rate), and 1Q of 2022 seeing the 3rd highest outperformance and hit rate over the last two decades.

Fifteen stocks emerged as some of the best ideas the Goldman Sachs team circled, and we screened that list for top technology names, as the sector has been crushed. Five look like outstanding ideas now. Of course, while all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Adobe

This large cap legacy technology stock has been cut in half over the past year. Adobe Systems Inc. (NASDAQ: ADBE) operates as a diversified software company worldwide. It operates through three segments.

The Digital Media segment offers products, services and solutions that enable individuals, teams and enterprises to create, publish and promote content. Its Document Cloud is a unified cloud-based document services platform. The company’s flagship product is Creative Cloud, a subscription service that allows members to access its creative products. This segment serves content creators, workers, marketers, educators, enthusiasts, communicators and consumers.

The Digital Experience segment provides an integrated platform and set of applications and services that enable brands and businesses to create, manage, execute, measure, monetize and optimize customer experiences from analytics to commerce. This segment serves marketers, advertisers, agencies, publishers, merchandisers, merchants, web analysts, data scientists, developers and executives across the C-suite.

The Publishing and Advertising segment offers products and services, such as e-learning solutions, technical document publishing, web conferencing, document and forms platform, web application development and high-end printing, as well as Advertising Cloud offerings.
Adobe offers its products and services directly to enterprise customers through its sales force and local field offices, as well as to end users through app stores and through its website. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, software vendors and developers, retailers and original equipment manufacturers.
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The Goldman Sachs price target for Adobe stock is $475. The consensus target is lower at $370.77, and the shares ended last week trading at $341.53. Hitting the Goldman Sachs target would be a large 40% gain.

Bumble

While not as well known as some of the stocks on the list, this is another that may be poised to burst higher next year. Bumble Inc. (NASDAQ: BMBL) provides online dating and social networking platforms in North America, Europe and elsewhere.

The company owns and operates websites and applications that offer subscription and in-app purchases dating products. The company operates two apps, Bumble and Badoo, with approximately 40 million users on a monthly basis, as well as Fruitz, an online dating app.

The company posted very solid earnings per share that beat expectations, and it has been outperforming the competition in a big way. Revenue was up 16% from the third quarter of 2021, while net income of $18.1 million was strong, compared with a loss in the same quarter of last year. In addition, profit margins were up 7.8% versus the losing quarter.

Goldman Sachs has a $30 target price, and the consensus target for Bumble stock is $25.31. Friday’s closing print was $24.80 per share.

RingCentral

Some feel this smaller cap company could be a great takeover target. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing and integration with document and customer relationship management systems.

RingCentral has separated itself as the leader in the unified communications as a service market, competing in an over $5 billion global total addressable market that is only about 10% penetrated. It has consistently grown revenue over 30% while generating healthy and growing margins. The pandemic likely has accelerated the decision to move from on-premise to cloud for many businesses, including large enterprises that typically take longer to transition. While competition has increased, particularly from Microsoft and Zoom, RingCentral has put in place a robust distribution network that positions it well to capitalize on the rapid shift to the cloud.

The $70 Goldman Sachs price target is well above the $54.12 consensus target and the $38.28 closing price on Friday. Investors could pocket close to a 90% gain if RingCentral stock hits the target.

Salesforce

This is another high-profile software leader whose stock has been absolutely scorched this year. Salesforce Inc. (NYSE: CRM) provides customer relationship management technology that brings companies and customers together worldwide. Its Customer 360 platform empowers its customers to work together to deliver connected experiences for their customers.
Salesforce’s service offerings include:

• Sales, to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence and deliver quotes, contracts and invoices
• Service, which enables companies to deliver trusted and highly personalized customer service and support at scale.

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Its Service offerings also comprise flexible platform that enables companies of various sizes, locations and industries to build business apps to bring them closer to their customers with drag-and-drop tools; online learning platform that allows anyone to learn in-demand Salesforce skills; and Slack, a system of engagement. Further Service offerings include:

• Marketing, which enables companies to plan, personalize and optimize one-to-one customer marketing journeys
• Commerce, which empowers brands to unify the customer experience across mobile, web, social and store commerce points
• Tableau, an end-to-end analytics solution serving various enterprise use cases
• MuleSoft, an integration offering that allows its customers to unlock data across their enterprise

Salesforce provides its Service offerings for customers in financial services, health care and life sciences, manufacturing and other industries.

Salesforce stock is a Goldman Sachs Conviction List member. The firm’s $300 price objective compares with a $204.43 consensus target. Friday’s final trade at $144.56 means hitting the Goldman Sachs target would be a 100% gain.

Snowflake

Surprisingly, Warren Buffett has shares of this top software company in the Berkshire Hathaway portfolio. Snowflake Inc. (NYSE: SNOW) provides cloud-based data platforms in the United States and internationally. Its platform offers Data Cloud, an ecosystem that enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications and share data. The platform is used by various organizations of various sizes in a range of industries.

Economic worries and tightening budgets are accelerating a move to consumption pricing, which charges software customers based on how much they use a product rather than a recurring annual or multiyear subscription fee. The model that has been popularized by Snowflake is being adopted by a growing number of software makers.

The Goldman Sachs target price of $200 is in line with the $200.05 consensus target. Snowflake stock closed at $149.74 on Friday.

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With earnings over for the quarter, and the possibility of a seasonal Santa Claus rally always looming, investors may want to buy positions now but keep some dry powder to add in January if 2023 comes out of the gate on the downside. At any rate, all these top stocks have been eviscerated over the past year and have big upside to the Goldman Sachs price targets.

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