2019 is a major question mark for investors. And like most sloppy markets, this one comes with a bit of a disclaimer. So it is in our best interest to prepare ourselves for more volatility and certainly more surprises.
Growth is slowing, that much we can see. NVDA just dazzled the markets with that juicy tidbit. Billionaire hedge fund investor Ray Dalio of Bridgewater Associates, for instance, told CNBC that he sees a “significant risk” for a recession in 2020.
And luckily for us commoners, we can thank the analysts at Goldman Sachs to put in the hard work. The firm has just released a report of the stocks it believes can outperform in a recession.
Its strategy is simple: find stocks with exploding margins. All the stocks covered below have something in common: their margin growth is expected to exceed 100 basis points this year.
After all, margins normally get constrained in a late-cycle environment, which means you can make money by identifying the exceptions. So with that in mind, here are three of the most compelling stocks from Goldman Sachs’ report.
Streaming giant Netflix (NASDAQ:NFLX) may not be the first stock you think of as recession-proof. Indeed, some analysts believe the stock looks very much over-valued. Nonetheless, as Goldman Sachs points out, NFLX has an extremely impressive expected 2019 margin expansion of 235 basis points.
In fact, Goldman Sachs’ Heath Terry (Track Record & Ratings) has a buy rating on NFLX with a bullish $450 price target. That has recently been ramped up from $420 previously. With prices currently at $326 this means we are talking about shares surging 37% from current levels.
Terry — an analyst with a notably high-ranking — believes that the company’s content investment yield implies increasing returns.
“As Netflix subscriber adds continue to exceed expectations and it approaches an inflection point in cash profitability, we believe shares of NFLX will continue to significantly outperform,” the analyst writes.
And with a strong Q4 earnings report now in the bag, Netflix scores a “Moderate Buy” consensus from the Street. Earnings results revealed that Global Paid Sub Growth continues to shoot higher.
“This is growth defined, in our view,” concluded RBC Capital’s Mark Mahaney. He now has a $480 price target for 49% upside potential. Get the NFLX Stock Research Report.
Vulcan Materials (VMC)
With 100% Street support right now, analysts are in agreement when it comes to Vulcan Materials Company (NYSE:VMC). And what do they agree on? This is a stock to Buy now. Six analysts have published back-to-back buy ratings on VMC. That’s with a $126 average price target (27% upside potential).
Vulcan Materials Company is an Alabama corporation and the nation’s largest producer of construction aggregates: primarily crushed stone, sand and gravel. All of that is good news because aggregates stand to outperform in a later-cycle environment and in inflationary environments.
These analysts expect demand strength to continue. That’s thanks to increased government funding from both the federal level (FAST-Act) and State level, which supports higher levels of public infrastructure spending.
“We anticipate that improvements in pricing and margin trends will follow a recent aggregates demand strength acceleration,” writes RBC Capital’s Michael Dahl (Track Record & Ratings). His $125 price target is basically in line with the Street average of $126 and translates into juicy upside potential of over 25%. Get the VMC Stock Research Report.
Morgan Stanley just downgraded Expedia Inc (NASDAQ:EXPE) from buy to hold.
According to Morgan Stanley’s Brian Nowak (Track Record & Ratings) the online travel industry is entering a period of slowing growth. And therefore increased investment.
Not so fast though. EXPE still has its fair share of supporters. Most notably, Goldman Sachs has just upgraded the stock from hold to buy.
The stock’s “relatively low trading multiple means it is likely to outperform in a tougher market environment for growth stocks,” analyst Heath Terry told clients. As a result, he ramped up his price target from $125 to $140 (20% upside).
“While we’re still generally cautious on the travel space given tight supply and healthy underlying demand, we believe TripAdvisor and Booking’s recent ad spend rationalization puts Expedia in a better relative position,” he explains.
Indeed, recent history shows that Expedia was able to drive bookings growth acceleration alongside leverage in ad spend.
Overall, EXPE comes with a Moderate Buy consensus and $145 average price target. Get the EXPE Stock Research Report.