We blame weather forecasters when they can’t predict a sunny day or a storm, but think of the data set they have to parse, and the conflicting winds and calms that come ahead of late-summer storm.
Today’s market environment would baffle the best meteorologist. Stocks are at all-time record levels, while Congress is locked in battle with itself, unable to pass a coherent spending package. The President’s preferred spending bill would run up Federal outlays into the trillions of dollars, boosting an already high inflation, while tax hikes would stifle business initiative and cut into take-home pay.
But there is some hope in the impasse. In the view of Goldman Sachs chief US equity strategist David Kostin, the Congress’ inability to push the tax hikes may have the effect of pushing corporate earnings higher in the mid-term.
“We are assuming that tax hikes are going to take place at the corporate level. It is a fluid game in DC… It seems right now that the outcome may be less onerous – there may be less of an increase in corporate tax rates than we have been assuming, and so if that was to transpire, then we would end up having somewhat higher earnings estimates that we are currently looking at. Right now, we are expecting 2% earnings growth from this year into next year, and if you didn’t have any tax reform at all, you’d have around 7%… And you’re probably going to be higher than a 2% level,” Kostin opined.
For now, Kostin’s colleagues among the Goldman Sachs stock analysts are picking out the stocks they see as winners in present market climate. According to the TipRanks database, these are Buy-rated equities, and in the Goldman view, they offer investors more than 30% upside in the coming months. Here are the details.
Uber Technologies (UBER)
We all know the name of this first stock, and many of us have used the service. Uber has helped turn the world of ‘rides for hire’ upside down, bringing ride sharing and hiring to a popular smartphone app. Since its introduction, Uber has expanded its services, growing from its San Francisco base to more than 900 cities around the world and adding food deliver (Uber Eats) and business services (Uber Freight) to its offerings. Even the basic ride option has expanded, adding ride pooling and luxury vehicles to the basic Uber rides offering.
During the pandemic period, Uber saw riders drop off – but Uber Eats expanded as more people called out for food deliveries. Top line revenues bottomed out at $2.25 billion in 2Q20, but by 2Q21 had risen back to $3.93 billion. Earnings per share, which had been negative for years, turned positive in 2Q21, coming in at 58 cents. The gains came as the rideshare service moved back to pre-pandemic levels. The company had unrestricted cash of $5 billion at the end of the second quarter of this year.
More recently, in October, Uber completed its acquisition of Drizly, the large e-commerce alcohol store in North America. The deal – done in a combination of stock and cash – cost Uber $1.1 billion, makes Drizly a wholly-owned subsidiary of Uber, and gives Uber access to Drizly’s delivery network in 1,600 cities across 33 states. Uber can now add deliver of beer, wine, and spirits to its services.
In his coverage of Uber for Goldman Sachs, 5-star analyst Eric Sheridan sees the company with a clear path forward. Delaney rates UBER a Buy, and his $64 price target implies an upside of 46% for the next 12 months. (To watch Sheridan’s track record, click here)
Backing his bullish stance, Sheridan wrote: “Across its array of products, we see Uber as the next large cap platform ecosystem in our coverage universe – scale of user and economic capture around a common theme of local transportation and eCommerce. While the rate of recovery in its Mobility business and the rate of normalization in Delivery will likely dominate short-term debates among investors, we think the longer-term focus is around the flywheel effect of platform users…. Specifically, we are bullish on the concept of how a collection of products can capture increasing wallet share across multiple end markets with secular growth & rising online penetration rates.”
Overall, Uber has an impressive 23 Buy ratings from the Wall Street analysts, and along with 2 Holds, these give the stock its Strong Buy consensus rating. The shares are priced at $44.57 and the $68.08 average price target implies it has room for ~53% growth in the year ahead. (See UBER stock analysis on TipRanks)
SmartRent (SMRT)
The next Goldman Sach pick is SmartRent, a $2.5 billion company in the smart home automation niche, but with a twist. The company specializes in home automation solutions – a combination of software and third-party hardware – for multi-family residences. In other words, SmartRent brings smart home tech, formerly a valuable add-on for upscale homes, to the rental apartment world. The company designs smart home and smart building tech for property owners, managers, and residents, and allows connection and control IoT devices.
SmartRent’s products are scalable to various property types, offer contactless touring, and even ID checks, to verify that visitors are residents or logged guests. The system can be customized, and features include parking management and access control. Smart locks and door cameras will appeal to residents.
In recent months, we’ve seen a bandwagon go by full of SPAC transactions – SmartRent jumped late this summer. The SMRT ticker started trading on Wall Street on August 25, after the company completed its business combination with Fifth Wall Acquisition Corporation. SmartRent realized approximately $450 million in net cash from the transaction.
Shortly after the SPAC completed, on August 30, SmartRent released its 2Q21 earnings, showing a 274% year-over-year revenue gain, from $5.8 million to $21.7 million. The company had deployed 23,834 new systems since 2Q20, a gain of 234%, and registered an increase of 606,000 committed units. Overall, the company’s customers own approximately 3.5 million rental units.
Initiating coverage of SMRT for Goldman Sachs, analyst Rod Hall likes what he sees in the company’s prospects for continued growth.
“We believe the market for providing a software platform for managing smart home hardware for multi-tenant building owners is nascent, with potential for secular long term growth. We note there are 32m multifamily apartments in the US, with minimal smart home adoption thus far. Given an increasing trend toward modern hybrid working/living spaces we believe penetration of automation technologies is likely to grow substantially in the future,” Hall wrote.
To this end, Hall rates SmartRent a Buy with a price target of $18, suggesting a one-year upside of 34%. (To watch Hall’s track record, click here.)
The Goldman review is one of two on record for this newly public stock – and it’s the bullish review. The other is to hold, and the Buy-Hold split gives the stock a Moderate Buy consensus view. The average price target of $16 implies an upside of ~19% from the current share price of $13.13. (See SMRT stock analysis TipRanks)
Brinks Company (BCO)
Last up on our list of Goldman Sachs picks is Brinks, the well-known private security company with a worldwide footprint. Brinks offers a wide range of services, from its high-profile armored courier trucks to its armed guard services to its ATM installation, replenishment, and maintenance. Brinks’s services are available to banks and governments, retailers and jewelers, to both large and small businesses.
After a blip downward to $826 million in 2Q20 – the worst at the corona pandemic scare – Brinks has seen its quarterly revenues hold in a fairly steady range, between $970 million and $1.08 billion per quarter. The most recent print, 3Q21, showed the highest revenue – $1.08 billion, along with earnings of $1.14 per share. These numbers came in above analyst expectations; the pre-report consensus on earnings was for 84 cents, for a beat of 35%, while the revenue number came in a more modest 3.7% above the forecasts.
In a point of interest for investors, in May of this year Brings bumped its regular share dividend up by 33%, from 15 cents to 20 cents, and has held it at that level since. The next payment is due in November, and will yield a modest 1%. The key point here is not the yield, but the reliability. Brinks paid out its dividend quarterly for 13 years now.
All of this points to a company with a sound footing in its niche, and that prompted Goldman’s George Tong to rate the stock a Buy along with a $97 price target. That figure indicates a potential for 41% share growth in the coming year. (To watch Tong’s track record, click here)
Backing his stance, Tong writes, “We believe BCO is well positioned to capitalize on an improving macro and retail environment, with revenue growth augmented by nascent digital cash management initiatives and further penetration of the unvended market. By the end of 2021, we expect BCO revenue will reach 100% of pre-COVID levels on a CC basis, providing an attractive base off of which to grow. Notably, the combination of efficiency initiatives, acquisition synergies and operating leverage is on track to drive 200 bps of margin expansion between 2020 and 2022, contributing to healthy valuation upside potential.”
Overall, Brinks has a small, but vocal camp of bullish analysts with positive expectations for its stock. Out of the 3 analysts polled by TipRanks, all 3 rate the stock a Buy. With a return potential of ~40%, the stock’s consensus price target stands at $96. (See Brinks’ stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: 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.
