Goldman Sachs names global ‘alpha’ stock ideas — and gives one nearly 60% upside
European markets have largely had a good run this year — with several market watchers looking keenly at the region and saying that it could have a ” greater tailwind than the U.S. ” Europe’s Stoxx 600 dipped in the last few days, but had been climbing since the start of the year. The benchmark is up by 10.8% year-to-date and 16.3% in the past year. Those searching for pockets of opportunities in the region can look to Goldman Sachs’ selection of “alpha” stock opportunities. Alpha stocks refer to those with the ability to beat the market. “Our macro team expects solid growth and monetary policy easing into 2H24. While the YTD [year-to-date] rally in equities suggests some of this optimism is already priced, with market correlation at a 5-year low, we continue to see potential for alpha opportunities,” the investment bank’s analysts wrote in a May 23 research note. Goldman Sachs’ list of opportunities include stocks with “deep value” and “defensive growth” characteristics. Here are five of them. ‘Inexpensive names’ Among the stocks with “deep value” Goldman Sachs likes are British sports fashion retailer JD Sports Fashion , airline holding company International Consolidated Airlines Group (IAG) and Danish facility management company ISS . Those stocks, the bank added, are “inexpensive names with upside vs. consensus.” JD: Goldman sees the stock offering a “compelling valuation” of nine times 2024 price-to-earnings, on the back of attractive earnings growth. That, the bank said, is thanks to “robust top-line trends and stable gross margin dynamics.” The company’s shares are traded in the First Trust United Kingdom AlphaDEX Fund (1.2% weight) and Goldman Sachs ActiveBeta Europe Equity ETF (0.3%). IAG: The company is able to “sustain higher margins” through the ongoing market cycle thanks to its strong market position in “relatively more consolidated markets,” Goldman noted. This would translate to better “free-cash-flow generation driving deleveraging and attractive shareholder returns,” the bank’s analysts added. Shares in IAG have a 1.2% weight in the U.S. Global Jets ETF . ISS: Goldman said the company has a “path to re-rating” over the next 12 months, possibly on the back of expectations beating organic growth and margins this year. The bank’s analysts have penciled an 8% return of its market cap to shareholders this year “with potential for material buybacks beyond this year.” ISS’ shares are traded in the iShares MSCI Europe Small-Cap ETF with a weight of 0.2%. ‘Strong top-line prospects’ Growth stocks the Wall Street bank is bullish on include those “with strong top-line prospects at reasonable growth-adjusted valuations.” On its list are Dutch payments company Adyen and semiconductor player ASML , both of which are in Goldman’s conviction list. Adyen: Goldman sees the stock as a “clear market leader in high functionality, full-stack, global multi-channel offers with its single fully integrated platform.” The bank’s analysts added that Adyen’s “growth-adjusted valuation [is] reasonable and argues that the share price weakness post 1Q24 offers an attractive entry-point.” ASML: Goldman said the company has a “multi-decade competitive moat in High NA, which will be extremely difficult to replicate for the next 10-20 years at least.” Both Adyen and ASML are traded on Euronext Amsterdam. Adyen is also traded in the U.S. as an American depositary receipt as ADYYF, while ASML has a secondary listing on Nasdaq. — CNBC’s Michael Bloom contributed to this report.
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