GOLDMAN SACHS: These 12 stocks are perfect for traders seeking big gains at bargain prices

Advertisement
GOLDMAN SACHS: These 12 stocks are perfect for traders seeking big gains at bargain prices

trader

Reuters/Lucas Jackson

Advertisement
  • Goldman Sachs has formulated a way to identify stocks that are both inexpensive and also investing in future growth opportunities.
  • To that end, the firm identified 12 companies it expects to outperform for value investors, even in a market where growth stocks have been so dominant.

By many metrics, the stock market is among the most expensive in history.

But Goldman Sachs finds that, from one perspective, it's actually quite average.

The gauge in question is free cash flow (FCF) yield, which measures a company's FCF relative to its market value. Generally, the lower it is, the more attractive investment opportunities are. And right now, it's sitting comfortably in the 56th percentile compared to history, according to Goldman data.

But it's not that simple. This discrepancy only exists because capital expenditures (capex) as a share of cash flow from operations (CFO) are historically low, says Goldman.

Advertisement

"Every dollar of CFO not spent on capex is accretive to FCF," Goldman clarifies. "Firms with high FCF yield often appear attractively valued simply because they have slashed capex."

What investors should do is adjust FCF yield to incorporate how much a company is investing in both growth capex and research and development, says David Kostin, the firm's chief US equity strategist. Then, once they have a firm handle on adjusted FCF yield, they can make informed stock picks.

This is particularly useful for value investors, or those seeking bargins in the market. It helps them avoid so-called value traps - the term used for companies that are cheap simply because they're bad.

In the end, adjusted FCF yield is intended to identify good companies whose stocks also meet the traditional definition of value.

Luckily for value investors, Goldman maintains a basket of high adjusted FCF yield companies. The firm's top 12 picks are as follow:

Advertisement

Get the latest Goldman Sachs stock price here.

{{}}

12. Foot Locker

12. Foot Locker

Ticker: FL

Industry: Consumer discretionary

Market cap: $5 billion

Adjusted FCF yield: 15%

Source: Goldman Sachs

11. Intel

11. Intel

Ticker: INTC

Industry: Information technology

Market cap: $216 billion

Adjusted FCF yield: 15%

Source: Goldman Sachs

Advertisement

10. AES Corp.

10. AES Corp.

Ticker: AES

Industry: Utilities

Market cap: $9 billion

Adjusted FCF yield: 15%

Source: Goldman Sachs

9. Freeport McMoRan

9. Freeport McMoRan

Ticker: FCX

Industry: Materials

Market cap: $20 billion

Adjusted FCF yield: 17%

Source: Goldman Sachs

Advertisement

8. Juniper Networks

8. Juniper Networks

Ticker: JNPR

Industry: Information technology

Market cap: $10 billion

Adjusted FCF yield: 17%

Source: Goldman Sachs

7. Alliance Data Systems

7. Alliance Data Systems

Ticker: ADS

Industry: Information technology

Market cap: $13 billion

Adjusted FCF yield: 17%

Source: Goldman Sachs

Advertisement

6. Celgene

6. Celgene

Ticker: CELG

Industry: Healthcare

Market cap: $61 billion

Adjusted FCF yield: 17%

Source: Goldman Sachs

5. Seagate Technology

5. Seagate Technology

Ticker: STX

Industry: Information technology

Market cap: $14 billion

Adjusted FCF yield: 18%

Source: Goldman Sachs

Advertisement

4. Dish Network

4. Dish Network

Ticker: DISH

Industry: Consumer discretionary

Market cap: $8 billion

Adjusted FCF yield: 22%

Source: Goldman Sachs

3. Micron Technology

3. Micron Technology

Ticker: MU

Industry: Information technology

Market cap: $53 billion

Adjusted FCF yield: 26%

Source: Goldman Sachs

Advertisement

2. Western Digital

2. Western Digital

Ticker: WDC

Industry: Information technology

Market cap: $17 billion

Adjusted FCF yield: 27%

Source: Goldman Sachs

1. Ford Motor

1. Ford Motor

Ticker: F

Industry: Consumer discretionary

Market cap: $37 billion

Adjusted FCF yield: 31%

Source: Goldman Sachs

Advertisement