Goldman cuts year-end S&P target, sees buying opportunity in some growth stocks
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Goldman Sachs predicts that while the stock market may rise in the future, many investors will be left with significant losses this year. David Kostin, the firm’s chief U.S. equity strategist, cut his year-end target for the S & P 500 but still sees roughly 7% upside for the market. We reduced our year end target from 4700 to 4300 to account for higher interest rates, slower economic growth and other factors than we had previously believed. Kostin explained that his new baseline forecast does not assume a recession and suggests the annual P/E remains unchanged at 17x. Goldman’s 2022 earnings per share growth forecast was raised to 8% (from 5%) this year. It supports stocks’ upside potential. Even if the S & P 500 reaches the new target, the S & P 500 would still be down 10% for the year. Kostin stated that investors will likely gain confidence later in 2012, which could lead to a market gain. But, an economic slowdown may cause the market to lose significant value. Kostin stated that the market would fall 11% to 3600 when the P/E drop to 15x. This would be a drawdown of 10.5%. What to Buy If investors start feeling more confident as the year progresses, it could bring good news for tech stocks. Goldman noted that while growth stocks have been dropping broadly over the past year, it has also taken out some stalwarts, as well as more speculative, names. However, things could change. As financial conditions tighten, growth stocks have seen a sharp decline in their value YTD. High margin growth stocks trade at the same 5x multiple EV/sales as their lower margin peers. Kostin said that multiples are likely to differ as investors prioritise profitability. Goldman gave a list that included high-growth companies with high margins. This list includes the two Big Tech companies Meta Platforms, Alphabet and Nvidia as well as the beaten down semiconductor stocks Micron and Micron. Facebook-parent Meta was the worst performing stock this year with a decline of 41%. Nvidia, however, is slightly lower at just 40%. Match Group, which suffered a 41% decline and Intuit (which saw a 42% drop), are two other companies that have outperformed the wider market. — CNBC’s Michael Bloom contributed to this report.
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