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Goldman Sachs: 3 Sleeper Stocks With huge Potential This Earnings Season

April 11
09:51 2019

We are about to head into the all-critical earnings season. And unfortunately it’s not looking too rosy. The S&P 500 is expected to report a blended rate of actual and estimated earnings decline of 4.2% in the first quarter from a year ago. This would mark the first earnings decline since 2016. However, Goldman Sachs is here to help. With this cautious outlook in mind, the firm has pinpointed a number of stocks that still offer strong investing potential.

To find these stocks the firm dug deep into its various trading strategies, and selected stocks that overlap on several different criteria. Goldman Sachs considered such areas as low labor costs, large dividends and big sales as well as strong defensive capabilities in case of a slowdown. Here are three of the ‘super’ stocks that make the cut. We used TipRanks data to further narrow down the firm’s suggestions to stocks that have significant Street support. Let’s take a closer at what makes these 3 stocks so special now:

Facebook (FB – Research Report)

Year-to-date shares in this social media giant have surged over 35%. And according to the Street these gains are set to continue. Alongside Goldman Sachs’ Heather Bellini, FB has received buy ratings from 30 other top-performing analysts in the last three months. That’s versus just 6 hold ratings. So a quick glance at the Street consensus reveals a pretty compelling outlook.

View FB Price Target & Analyst Ratings Detail

Notably, even Guggenheim’s Michael Morris (Track Record & Ratings) has now joined the bull camp. He upgraded his FB rating from hold to buy on April 4, citing a shift in investor sentiment. According to Morris, investors are becoming increasingly unfazed by Facebook’s privacy problems and data leaks.

“Investors will continue to gain comfort with the incremental financial risk created by content and privacy concerns,” the analyst wrote. Indeed growth has remained solid, especially at Instagram, the jewel in FB’s crown. Encouragingly, the analyst also sees the “potential for commerce and messaging monetization opportunities as attractively priced within shares.”

As well as an upgrade, Morris boosted his price target from $175 to $200. However that’s still a long way from the stock’s most bullish price target, which at $225 indicates upside potential of 27%. The best part: according to TipRanks this comes from one of the Street’s most savvy stock pickers. Out of over 5,100 tracked analysts, Monness analyst Brian White (Track Record & Ratings) comes in the Top 20:

“With sales up 45% per annum over the past four years, EPS turning in a 62% CAGR and one of the highest operating margins in our coverage universe, we believe Facebook should trade at a healthy premium to the market and tech sector” explains the analyst.

Like Morris, he expects the negative news flow to continue; however this doesn’t detract from continued advertiser spending and Facebook’s clear path forward on improving the platform. Big catalysts for FB include a successful transition to stories and video, monetizing Instagram and WhatsApp and future innovations utilizing FB’s AR, VI and AI expertise.

Foot Locker (FL – Research Report)

Sportswear retailer Foot Locker actually holds a cautiously optimistic Moderate Buy Street consensus.

However, and here’s the key, shifting to only ratings from best-performing analysts reveals that FL boasts a Strong Buy top analyst consensus. And similarly, the average price target rises from $69 to $75 (22% upside potential):

View FL Price Target & Analyst Ratings Detail

Most recently, five-star Baird analyst Jonathan Komp (Track Record & Ratings) reiterated his buy rating with a $77 price target. If you are looking for retail exposure, Komp advises turning to the more attractively-priced Foot Locker over Nike (NKE). “While we remain confident in the outlook for NKE, somewhat limited near-term EPS upside combined with full valuation keep us looking for a better near-term entry point” he wrote on Nike.

Meanwhile the combination of rapidly growing smaller footwear brands coupled with Nike’s comeback is a clear positive for Foot Locker, says the analyst. “We suspect the slight reduction in NKE’s penetration reflected very strong growth for other smaller brands,” Komp said. “Importantly we think the Nike performance likely inflected during FL’s F2018 and has significant room for upside from the current trough levels.”

Indeed, the stock has received a slew of recent buy ratings following its investor day on March 28. The company revealed its five-year financial plan to evolve into a more customer-centric organization including tactics such as a new loyalty card, new store formats and better digital capabilities.

“This is not your dad’s Foot Locker. Foot Locker now sees itself as a demand creator and not just a product picker; it believes in relationships over transactions” summed up Pivotal Research’s Mitch Kummetz (Track Record & Ratings).

AT&T Inc (T – Research Report)

So Foot Locker over Nike… and AT&T over Verizon (VZ). That’s the verdict of top Raymond James analyst Frank Louthan (Track Record & Ratings). He has just upgraded dividend aristocrat AT&T from Hold to Buy with a price target of $34.

“The outlook for positive earnings growth combined with a strong de-levering story are likely to drive the shares to outperform,” Louthan told investors. “AT&T trades at a discount to Verizon of ~3.5x turns of EPS and FCF, with 250 bp higher dividend yield. We believe that the combination of positive earnings growth and delivering over the course of the year will being investors back to AT&T.”

In the last year Verizon has soared 21%, while AT&T plunged 11%. The stock suffered due to legal pressures over the massive Time Warner deal and customer growth also slowed. However, the analyst believes that cutting costs will improve profitability, and is looking forward to an enhanced streaming service and a more complete channel lineup both set for later this year.

Overall, AT&T holds a ‘Strong Buy’ Street consensus, with a $35 average analyst price target. Note that shares are already improving, with AT&T currently up 12% year-to-date. Plus the stock pays out a hefty dividend. With a yield of 6.4%, investors currently enjoy a $2.04 annualized dividend (paid quarterly) following no less than 34 years of dividend growth.

View T Price Target & Analyst Ratings Detail

Enjoy Research Reports on the Stocks in this Article:

AT&T Inc. (T) Research Report

Facebook, Inc. (FB) Research Report

Foot Locker, Inc. (FL) Research Report

If you are looking for fresh investing inspiration, then the TipRanks Analysts’ Top Stocks tool is the perfect solution. Using this recently revamped tool you can find the latest stock picks from analysts that consistently outperform. Discover ‘Strong Buy’ stocks that match your investing strategy. Go to Analysts’ Top Stocks now.

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