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Goldman Sachs: these 2 “Strong Buy” stocks could increase by at least 30%
We’re now well into the first quarter of 2021, and it’s a good time to take stock of what’s behind us and how that will impact what lies ahead. Goldman Sachs strategist Jan Hatzius believes we are on an upward trajectory, with better times ahead. Hatzius sees developed economies grow as the corona crisis recedes. For the United States, in particular, he is impressed with the “very substantial tax support” implied by the latest COVID relief plan. Even with that, however, Hatzius thinks the fourth quarter was a weaker period, and we’re still not quite out of it. He puts Q1 growth at 5% and says we’re going to see further “spring concentrated” expansion and “Q2 growth rate accelerating to 10%”. And by the acceleration, Hatzius means investors should expect Q2 GDP of around 6.6%. Hatzius attributes these predictions to ongoing vaccination programs and the continued development of COVID vaccines. Moderna and Pfizer vaccines are already in production and in circulation. Hatzius says, of these programs, “The fact that we are developing more options and governments around the world will have more options to choose between different vaccines. [means] production should increase quite sharply in the coming months… This is certainly one of the main reasons for our optimistic growth forecasts. In addition to Hatzius’ look at the macroeconomic situation, Goldman Sachs analysts also looked at specific stocks. Using TipRanks’ database, we identified two stocks that the firm says will show solid growth in 2021. The rest of the street also supports both symbols, each sporting a ‘Strong Buy’ consensus rating. Stellantis (STLA) We’ve talked about the Detroit automakers before, and rightly so – they are major players in the US economy. But the United States does not have a monopoly on the automotive sector, as the Dutch company Stellantis has proven. This international conglomerate is the result of a merger between the French PSA Group and the Italian-American Fiat-Chrysler. The deal was a 50-50 equity deal, and Stellantis claims a market cap of over $ 50 billion and a portfolio of near-legendary nameplates, including Alpha Romeo, Dodge Ram, Jeep and Maserati. The deal that formed Stellantis, now the world’s fourth largest automaker, took 16 months to come to fruition, after being first announced in October 2019. Now that is a reality – the merger was completed in January of this year – the combined entity promises a cost savings of nearly 5 billion euros on the operations of Fiat-Chrysler and PSA. These savings appear to be achieved through greater efficiency, not through plant closures and reductions. Stellantis is new to the markets, and the STLA symbol has supplanted Fiat-Chrysler’s FCAU on the New York Stock Exchange, giving the new company a rich history. The company’s share value has nearly tripled from its low point, hit last March during the “ corona recession, ” and has remained strong since the merger ended. Goldman Sachs analyst George Galliers is optimistic about Stellantis’ future, writing: “We see four factors that we believe will allow Stellantis to respond. 1) PSA and FCA’s product portfolios in Europe cover segments of similar size at similar prices … 2) Additional economies of scale can potentially have a significant impact on both companies … 3) Both companies are at a relatively nascent stage [in] electric vehicle programs. The merger will avoid duplication and create synergies. 4) Finally, we see opportunities around central staffing where existing functions can probably be consolidated … ”In line with this perspective, Galliers rates STLA a Buy and its price target of $ 22 indicates room for growth 37% in the coming year. (To see Galliers’ track record, click here) Overall, this merger has generated a lot of buzz, and on Wall Street, there is broad agreement that the combined company will generate returns. STLA has a Strong Buy consensus rating, based on 7 unanimous buy-side reviews. The stock is priced at $ 16.04, and the average target of $ 21.59 is in line with that of Galliers, suggesting upside potential of 34.5% year on year. (See STLA stock market analysis on TipRanks) NRG Energy (NRG) From the automotive sector, we are moving to the energy sector. NRG is a $ 10 billion utility provider, with two headquarters in Texas and New Jersey. The company supplies electricity to more than 3 million customers in 10 states plus DC, and has a generating capacity of more than 23,000 MW, making it one of the largest electric utilities in North America. NRG’s production includes coal, oil and nuclear power plants, as well as wind and solar farms. In its latest quarterly report, for 3Q20, NRG posted total revenue of $ 2.8 billion, along with EPS of $ 1.02. Although declining year over year, this was still more than enough to keep the company’s solid and reliable dividend payout f 32.5 cents per common share. This annualizes to $ 1.30 per common share and gives a return of 3.1%. Analyst Michael Lapides, in his coverage of this action for Goldman Sachs, rates NRG a Buy. Its price target of $ 57 suggests a 36% rise from current levels. (To see Lapides’ balance sheet, click here) Noting the recent acquisition of Direct Energy, Lapides says he expects the company to deleverage in the near term. “Following NRG’s acquisition of Direct Energy, one of the largest competitive electricity and natural gas retailers in the United States, we see NRG’s business as somewhat transformed. The integrated business model – owning a wholesale merchant power generation that provides electricity that gets used to serving customers supplied by NRG’s competitive retail division – reduces exposure to food markets market and commodity prices, while increasing FCF potential, ”Lapides summed up. We view 2021, from a capital allocation perspective, as a year of deleveraging, but with NRG creating nearly $ 2 billion / year in FCF, we are seeing a resumption of share buybacks as well as growth. of the 8% dividend to come in 2022-23. “Here we are looking at another stock with a consensus rating from Strong Buy analysts. This is based on a 3: 1 split between the Buy and Hold valuations. NRG is trading at $ 41.84 and its target average price. of $ 52.75 suggests a 26% rise from that level. (See NRG Stock Market Analysis on TipRanks) For great ideas for stocks traded at attractive valuations, visit TipRanks Best Stocks To Buy, a newly launched tool that brings together all the information about the shares of TipRanks. sclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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