A research team at Goldman Sachs has released a list of stocks which they think have the highest upside when comparing the current price to the team’s price target. Of course, analysts don’t always get it right and an investor might not be able to buy every stock on the list in any case, but a list such as this can serve as a good starting point for further research. Here are Goldman’s picks for 2013:
The investment bank thought that Halliburton Company (NYSE:HAL) had about 50% upside. The $32 billion market cap oil and gas services company certainly seems low priced at 11 times earnings, whether we consider net income on a trailing basis or analyst consensus for 2013. However, despite high activity in the U.S. and modest revenue growth the company actually saw an 11% decline in earnings in the third quarter compared to the same period in 2011. Halliburton was one of the most popular energy stocks among hedge funds for the third quarter of 2012 (see the full rankings). We think that it’s worth it to look more closely at Halliburton; the company should be growing given industry demand, and if it can do so then it will be very undervalued at the current price.
Goldman’s next pick was Newfield Exploration Co. (NYSE:NFX), an oil and gas exploration and production company. Newfield has operations in the onshore U.S. as well as offshore assets in the Gulf of Mexico, Malaysia, and China. The stock is down 33% in the last year, which has brought it to a trailing P/E multiple of only 13. Billionaire David Shaw’s D.E. Shaw increased its stake in Newfield by 6% during the third quarter, closing September with 2.1 million shares in its portfolio (check out D.E. Shaw’s stock picks). It could be another good value play, but we’d note that oil majors generally trade at even cheaper valuations.
$6.1 billion market cap mining equipment manufacturer Joy Global Inc. (NYSE:JOY) was another of the bank’s recommendations. Despite double-digit growth rates of revenue and earnings in its most recent quarter compared to the same period in the previous fiscal year, the stock is down 32% in the last year. This is likely due to investors worrying about macro conditions, particularly in China (the stock’s beta is 2.2). Billionaire Ken Griffin’s Citadel Investment Group more than doubled the size of its position between July and September, to a total of about 770,000 shares (find Ken Griffin’s favorite stocks). At 9 times earnings we think that Goldman found another value play here; investors may want to consider peer Caterpillar as another possibility.
Teradata Corporation (NYSE:TDC), which data solutions and consulting services, has an upside of 46% according to the team of Goldman analysts. Teradata is a growth stock: it trades at 26 times trailing earnings, so it needs significant improvement on the bottom line to justify its valuation let alone prove undervalued. Net income was up 20% last quarter versus a year earlier, which is a start, but we would need to see that growth rate continue for some time before we’d recommend buying. Maverick Capital, managed by Lee Ainslie, initiated a position in Teradata during the third quarter. See more stocks Ainslie was buying.
Another stock where Goldman sees upside is Owens-Illinois, Inc. (NYSE:OI), a $3.3 billion market cap manufacturer of glass containers. This is another stock with considerable exposure to the broader economy, with a beta of 2.2; we’d note that the bank’s picks we’ve discussed have been generally bullish on global growth. An insider was buying the stock in July (view a history of insider purchases at Owens-Illinois) and though the price is up about 5% since that time insider purchases tend to be bullish signs and Goldman obviously believes the stock still have quite a bit of potential. The stock trades at 7 times forward earnings estimates; its revenue and earnings have been down, so we wouldn’t necessarily recommend buying, but the multiple is low enough that we think it could be worth a closer look.