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How do you find good bargains in a stock market that’s already the most expensive since the dot.com bubble? Goldman Sachs has some ideas.
The bank says the key is to find companies that not only offer compelling cases for future gains, but are also under-owned by fund managers and generally underappreciated by the investment population.
In order to single out the stocks with the most upside potential, the equity strategy team at Goldman picked companies meeting the following three qualifications:
- Active share across large-cap mutual funds that’s below the S&P 500 median of 7 basis points
- Active share that’s at or below its five-year average of 7 basis points
- A buy rating with Goldman equity analysts
The resulting group of stocks has higher expected sales and earnings growth than the median S&P 500 company, while also boasting a lower price-earnings multiple.
Here’s a list of the 14 stocks identified by Goldman, as of March 31, arranged in descending order of active mutual fund share:
14. L3 Technologies
Ticker: LLL
Sector: Industrials
Upside to Goldman target price: 13%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
13. NetApp
Ticker: NTAP
Sector: Information technology
Upside to Goldman target price: 16%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
12. Juniper Networks
Ticker: JNPR
Sector: Information technology
Upside to Goldman target price: 23%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
11. NRG Energy
Ticker: NRG
Sector: Utilities
Upside to Goldman target price: 37%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
10. Affiliated Managers Group
Ticker: AMG
Sector: Financials
Upside to Goldman target price: 25%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
9. Quest Diagnostics
Ticker: DGX
Sector: Healthcare
Upside to Goldman target price: 14%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
8. L Brands
Ticker: LB
Sector: Consumer discretionary
Upside to Goldman target price: 35%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
7. Comerica
Ticker: CMA
Sector: Financials
Upside to Goldman target price: 18%
Large-cap mutual fund active share: 4 bp
Source: Goldman Sachs
6. DXC Technology
Ticker: DXC
Sector: Information technology
Upside to Goldman target price: 15%
Large-cap mutual fund active share: 3 bp
Source: Goldman Sachs
5. Tiffany & Co.
Ticker: TIF
Sector: Consumer discretionary
Upside to Goldman target price: 22%
Large-cap mutual fund active share: 3 bp
Source: Goldman Sachs
4. TechnipFMC
Ticker: FTI
Sector: Energy
Upside to Goldman target price: 17%
Large-cap mutual fund active share: 3 bp
Source: Goldman Sachs
3. Range Resources
Ticker: RRC
Sector: Energy
Upside to Goldman target price: 86%
Large-cap mutual fund active share: 2 bp
Source: Goldman Sachs
2. Xerox
Ticker: XRX
Sector: Information technology
Upside to Goldman target price: 21%
Large-cap mutual fund active share: 2 bp
Source: Goldman Sachs
1. FLIR Systems
Ticker: FLIR
Sector: Information technology
Upside to Goldman target price: 22%
Large-cap mutual fund active share: 1 bp
Source: Goldman Sachs