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. To reflect lower interest rates and slower economic growth, we have reduced our year-end goal to 4300 from 4700. Kostin explained that his new baseline forecast does not assume a recession and suggests the annual P/E remains unchanged at 17x. Goldman raised its 2022 earnings-per-share growth projection to 8%, from 5% last year. This supports the notion of stocks having upside. 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 said that a recession could see the index drop by 11% to 3600 if the P/E falls 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 stated that growth stocks have fallen broadly and taken out both speculative and established names. But, this could be changing. As financial conditions tighten, growth stocks have seen a sharp decline in their value YTD. Growth stocks that have high margins trade at the 5x EV/sales multiple of their low margin peers. Kostin stated that we expect multiples to diverge as more investors place importance on profitability. Goldman provided a list with the names of high-growth and high-margin businesses. This list includes the two Big Tech companies Meta Platforms, Alphabet and Nvidia as well as Micron and Micron which are both beaten down semiconductor stocks. 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 are below the market. — CNBC’s Michael Bloom contributed to this report.
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