When every rally attempt fails, like the two we have seen this week, market veterans know that it is likely that the path of least resistance for the stock market is lower, at least in the meantime. The negative gross domestic product reading for the first quarter (the first such print since the second quarter of 2020), and the fact that a lousy second-quarter GDP number (due out this week) is a given, is a very good sign that things could get worse before they get better.
The highest inflation in 41 years, the ongoing war between Russia and Ukraine, supply-chain issues and a host of additional woes continue to pressure the equity markets, and many investors have grown nervous, especially with the Nasdaq already dipping in and out of bear market status.
We decided to screen the Goldman Sachs Conviction List looking for ideas that aggressive investors with longer time horizons and a higher risk tolerance may want to consider now. While there could still be downside, to as low as 3,400 on the S&P 500 and perhaps farther, the time to buy is when there is the proverbial blood in the street, which may not be all that far off.
While all the following stocks are Buy rated, and among the top picks at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Alcoa
This company could be a solid play for more conservative investors looking to the mining sector. Alcoa Corp. (NYSE: AA) produces and sells bauxite, alumina and aluminum products. The company offers aluminum sheets for the production of cans for beverage and food.
Alcoa also engages in the aluminum smelting, casting and rolling businesses, as well as generation and sale of renewable energy and provision of ancillary services. The company was known as Alcoa Upstream until it changed its name to Alcoa in October 2016.
Goldman Sachs noted this about the company:
Our positive outlook on Alcoa is predicated on the following four points. (1) The company has significant leverage to a positive commodity price outlook, where we estimate every 10% increase in aluminum prices corresponds to a ~20% increase in EBITDA. (2) Alcoa has been successful in its deleveraging strategy, which we expect to free up balance sheet capacity for capital returns. (3) Alcoa screens favorably relative to the global industry, given the company’s lower carbon footprint and green growth initiatives. (4) Recent underperformance from May 2021 highs and a continued underappreciation of the company’s progress in repositioning itself has led to the shares trading at a discount, in our view, creating an even more attractive entry point for investors seeking aluminum exposure.
Shareholders receive just a 0.51% dividend. The Goldman Sachs price target on Alcoa stock is $104, while the consensus target is lower at $85.67. The shares closed Tuesday at $49.25, so hitting the analyst’s target would be a huge 109% gain.
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