This summer has seen policies and economic forecasts move in see-saw fashion, as state economies opened up, restrictions were lifted – and then the dreaded ‘second wave’ of COVID-19 showed signs of appearing, prompting new lockdowns in California and a mask mandate in Texas.
Investment bank Goldman Sachs, which had been forecasting a gangbusters growth rate of 33% in Q3, now sees the economy beginning to slow. The firm is guiding toward 25% growth in third quarter, and a July-August ‘pause’ in consumer services.
Still, according to Goldman’s chief economist Jan Hatzius, “The recent declines are minor compared to the collapse in activity in March and April, but they clearly indicate a break from the steady upward trend since mid-April.”
Even though the bank, and its strategists, are turning more cautious on the markets as we head into late summer, they are also pointing out stocks to buy. It’s a contradiction, but squared by the stock analysts’ approach. They are now taking a more selective look at the markets, to find the less-visible opportunities hidden behind the pandemic
We’ve used the TipRanks database to pull up the details on three stocks that Goldman Sachs recommends. These stocks all offer over 30% upside potential in a difficult investing climate. Let’s see what else brought them to the analysts’ attention.
Albertsons Companies (ACI)
America’s second largest grocery chain, Albertsons, went public this past June. The chain’s management saw opportunity in the pandemic chaos – with more people cooking at home, a grocery chain basing its brand on fresh meat and seafood would have a chance to build on changing consumer habits. The grocery chain is profitable, with revenues of $62 billion in fiscal year 2019 and net income of $466 million.
Goldman’s Kate McShane, a 5-star expert on retail stocks, is bullish on groceries. In a recent note, she writes, “[We] note eating at home trends continue to hold up well, with food growth above where it was pre-pandemic and grocery app downloads still above average. We believe that demand will remain higher than average for the longer term driven by a more value conscious consumer and possibly due to behavioral changes of eating out.”
Regarding ACI, McShane notes “Our framework focuses on operating income dollar growth, market share gains, defensiveness, execution, SSS sales growth, and EPS growth in the context of valuation. ACI scores the highest on all these measures versus SFM and KR. Further, ACI scores only slightly lower than high quality names such as WMT, COST and ORLY, further underscoring our Buy rating.”
Along with her Buy rating, McShane sets a $22 price target on ACI that implies an upside of 45%. (To watch McShane’s track record, click here)
Overall, Wall Street agrees with the Goldman Sachs stance on Albertsons. The stock has 16 reviews, including 13 Buys and just 3 Holds. Shares are trading for $15.20, while the $19.64 average price target suggests a one-year upside of 29%. (See ACI stock analysis on TipRanks)
Kimco Realty (KIM)
From groceries, we move to Kimco Realty, a real estate investment trust that focuses on shopping centers. The company’s portfolio includes 422 properties, with more than 70 million square feet of leasable space.
The collapse in retail activity during 1H20 hurt Kimco’s share price, but not the company earnings. KIM fell 56% in March, and has recovered only slightly. The stock is still down 40% from pre-crash levels. At the same time, earnings have been steady and stable. Q1 EPS came in at 37 cents, beating the 36-cent forecast – and matching the previous two quarters. Revenues, at $289.7 million, were in-line with the forecast and the year-ago numbers.
The May earnings helped support Kimco, but the company got a stronger shot in the arm last month. At the end of June, Kimco announced that it has realized over $71 million from an investment in a major grocery chain that anchors many of the company’s retail properties. The investment – which has totaled $207 million since 2006 – has brought the REIT at total of $569 million over the years. And the grocery company that has brought Kimco these gains? Albertsons.
Covering this stock for Goldman Sachs, analyst Caitlin Burrows noted, “As of June 30, 2020, the company had collected 66%, 65%, and 72% of pro-rata ABR for April, May, and June 2020, respectively. This is slightly higher than our prior estimate of 2Q collections, of 66%. In 2Q20, the company expects to increase its allowance for doubtful accounts receivable (AR) by $45-$55 million (consisting of $35.5-$40.5 million of allowance against AR and $9.5-$14.5 million against straight line rent receivables). We acknowledge this reserve reflects KIM’s approach to accounting, but will likely vary by REIT in the near-term due to each company’s own assumptions and accounting practices.”
To this end, Burrows rates KIM a Buy, along with a $15 price target. This figure implies a strong upside of 38% for shares. (To watch Burrow’s track record, click here)
Wall Street is naturally wary of a major retail property owner right now, so the analyst consensus, a Hold, is sharp contrast to Burrows’ upbeat outlook. The consensus rating is based on 3 Buys, 10 Holds, and 1 Sell given in recent weeks. KIM shares have an average price target of $12.96, suggesting – despite the caution – a 15% upside potential in the coming year. (See KIM stock analysis on TipRanks)
Citrix Systems (CTXS)
From groceries, we move to tech. Citrix is a software company, offering SaaS and cloud systems for desktop virtualization, security, and networking. The company’s shares have been rising steadily through the pandemic period, as its products are a fine fit for the mass move toward remote work. CTXS is up 17% since February, strongly outpacing the broader markets.
Earnings in Q1 were strong, growing sequentially from Q4 and beating the analyst forecasts. Q2 was disappointing, however, with EPS sliding from $1.46 to 99 cents – although it was still well above the estimates. Q2 revenues, at $799 million, were also above the forecast, and up 6.8% year-over-year.
With a presence in over 100 countries, a customer base more than 10,000 strong, and annual revenues exceeding $3 billion, along with digital products well suited to today’s work environment, Citrix stands in an enviable position.
Heather Bellini, Goldman’s 5-star analysts, notes this when she writes, “We continue to view Citrix as well positioned to capitalize on long-term secular growth tailwinds, including workforce mobility and security, within its digital workspaces business. We believe the debate going forward will likely center on the durability of recent strength following work from home initiatives enacted post COVID-19…”
Bellini’s bullish outlook and Buy rating on the stock come with a $189 price target, indicating her confidence in 36% growth for the year ahead. (To watch Bellini’s track record, click here)
Overall, the analyst consensus here is a Moderate Buy, based on 11 reviews, including 5 each Buys and Holds, along with 1 Sell. The average price target, $166.57, suggests room for 16% growth from the current trading price of $139.35. (See Citrix stock analysis on TipRanks)
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