- Advertisement -
Goldman Sachs is forecasting zero earnings growth in 2023, and stocks will remain virtually flat at the end of next year. The firm forecasts 2023 S&P 500 earnings per share to be flat at $224 and the index to end next year at $4,000, up just over 1% from Monday’s close. The S&P will also have an unchanged price-to-earnings ratio of 17x, said David Costin, Goldman’s chief US equities strategist. “We expect less pain, but no gain,” he wrote in a note on Monday. However, stocks will not stay in a straight line all year. Instead, Costin predicts that stocks will fall first. His three-month target for the S&P 500 is 3600, down 8.86% from Monday’s close. He expects the Fed’s tightening cycle to end in May, forcing investors to shift their focus to growth in 2024. Goldman’s baseline forecast assumes a soft landing for the US economy. “Under a soft landing scenario, our economists predict that below-trend GDP growth will be accompanied by an increase in the unemployment rate of just 1/2 point to 4.1%, and the US economy will avoid recession in 2023,” Kostin wrote. However, a severe recession scenario remains a clear risk, he said. If that happens, he expects the S&P to bottom at 3150. “The combination of fixed income in our base case and a significant decline in a recession means investors should remain cautious,” Kostin said. According to him, this means a reorientation of portfolios towards defensive sectors with low interest rate risk. Goldman recommends that investors pay more attention to basic consumer goods and health care, which tend to benefit from slower growth and higher real rates. The firm also likes the energy sector, which has historically performed best during periods of stagflation, Kostin said. Goldman also recommends being overweight in telecommunications, consumer durables, and clothing. While utilities also typically outperform, they are trading at record high valuations and therefore Goldman has a neutral rating in the sector. Under these conditions, investors should also own shares that are used to slow inflation, Kostin said. He identified 39 stocks from industry groups that typically perform best when inflation is high. They also have forward returns for the next 12 months and lagging returns from free cash flows over the last 12 months are higher than the respective sectors and the aggregate index, Kostin said. In addition, on the day of the release of the recent CPI data, stocks outperformed their respective industry groups. Here are 10 such names. Medical company Organon, which specializes in birth control and fertility brands, will have a 20% per-share return over the next 12 months, but Goldman estimates its 2023 per-share growth will drop by 5%, according to Goldman. Organon, a spin-off from Merck, recently told CNBC that it intends to invest in future opportunities to expand its portfolio and identify therapies, diagnostics and devices that meet patient needs. According to FactSet, the stock has 28% upside potential compared to analysts’ median target price. Meanwhile, Citigroup recently laid off about 50 sales staff, CNBC’s Hugh Son was told by people with knowledge of the cuts. According to Goldman, the bank’s earnings per share over the next 12 months is 14%, with projected earnings per share down 12% in 2023. Shares of Walgreens Boots Alliance recently surged after the company said it would invest $3.5 billion to support VillageMD’s acquisition of emergency medical provider Summit Health. Last month, the company reported an increase in sales and earnings for its fourth fiscal quarter. Goldman found that Walgreens’ earnings per share per share over the next 12 months is 11%, with an estimated earnings growth of 2% in 2023. Lowe’s also has a positive quarter, reporting third-quarter earnings that beat Wall Street’s expectations. The company also raised its full-year profit guidance. According to Goldman, its earnings-per-share over the next 12 months is 7%, with an estimated earnings-per-share growth of 4% in 2023. — Michael Bloom of CNBC provided the coverage.
Credit: www.cnbc.com /