Goldman Sachs: Two Strong Stocks to follow
Out on Wall Street, elections are the talk of the town. As President Trump’s battle against COVID-19 wages on, Biden has taken the lead in the race to the White House, with a Reuters poll conducted on October 2–3 putting the former Vice President ahead by 10 percentage points. Against this backdrop, fears of a blue wave (a Democrat-controlled presidency, Senate and House) are washing onto the Street.
However, Goldman Sachs believes a blue wave might not be such a bad thing for the U.S. economy. “All else equal, such a blue wave would likely prompt us to upgrade our forecasts. The reason is that it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the likely longer-term tax increases on corporations and upper-income earners,” Goldman Sachs economist Jan Hatzius noted. Bearing this in mind, our focus shifted to two stocks flagged by Goldman Sachs as strong value plays.
Running both tickers through TipRanks’ database, we found out what makes each so compelling. General Electric (GE) First up we have General Electric, which has been a pioneer in the transportation, power, environmental and healthcare industries for the last 150 years. According to John Peterman, SVP at Goldman Sachs, the future looks bright for this name. Firm analyst Joe Ritchie tells clients that in the two years since Larry Culp took over as CEO, the company has placed a significant focus on becoming a “leaner, structurally more productive company with better capital discipline.” “While the pandemic has caused delays in the transformation, we believe GE will emerge as a stronger company. Admittedly, we might be a little early on the turn in the stock, but we believe we are at a bottom from both a fundamental and sentiment perspective, and that is typically the best time to own industrial cyclicals.
Our base case assumption is that a vaccine will be mass distributed over the next 12 months and, under this scenario, we believe the second derivative improvement on the resumption of air travel will be significant and many of the underlying concerns on GE’s balance sheet will fall to the background,” Ritchie explained. To this end, the analyst thinks HSD industrial free cash flow margins could be achieved by 2023. However, these expectations could be conservative should commercial aerospace rebound more quickly than Ritchie anticipates. “In the near-term, we believe Industrial FCF bottomed in 1H20 and think GE could generate $1 billion-plus in 2H20 given close to $2 billion in 2H cash actions, high margin outages that were pushed from 1H to 2H, a lower drag from onshore wind installations given the PTC was extended to 2021 and a good recovery in PDx. As a result, we think 2H Industrial FCF could likely surprise to the upside, a potential positive near-term catalyst for the shares,” Ritchie commented.
It should be noted that aviation has been GE’s crown jewel segment, but this sector has been hampered by the pandemic as well as two fatal Boeing 737-Max crashes. That said, Goldman Sachs’ global Aerospace team expects commercial AM trends to return to 2019 levels by 2023. Ritchie added, “We estimate there could be an additional $1.3 billion to our Aviation 2023 EBIT forecast if commercial aftermarket were to rebound to 2019 levels by 2023.” On top of this, the Renewables and Power segments could drive upside for GE. “While the COVID-19 pandemic hurt Gas Power demand, we believe the self-help story is firmly in place but still discount management’s expectations for HSD margins in Gas Power in 2021 and we don’t expect Renewables to turn EBIT positive until 2022,” Ritchie mentioned.
In line with his optimistic approach, Ritchie stayed with the bulls, reinstating a Buy rating with a $10 price target. Investors could be pocketing a gain of 46%, should this target be met in the twelve months ahead. (To watch Ritchie’s track record, click here) Turning to the rest of the Street, opinions are split evenly.
With 6 Buys and 6 Holds assigned in the last three months, the word on the Street is that GE is a Moderate Buy. At $8.20, the average price target implies 20% upside potential. (See General Electric stock analysis on TipRanks) Translate Bio (TBIO) Developing a new class of potentially transformative medicines using messenger RNA (mRNA), Translate Bio hopes to bring new treatments to market for diseases caused by protein or gene dysfunction.
Based on its promising technology, it’s no wonder Goldman Sachs is pounding the table. Writing for the firm, analyst Terence Flynn points to its lead candidate, MRT5005, a codon-optimized human CFTR mRNA, which is formulated in lipid nanoparticles that are delivered via a nebulizer, as a key component of his bullish thesis. The therapy is currently progressing through a Phase 1/2 cystic fibrosis (CF) trial. Looking at early clinical data, the asset generated an initial signal of clinical activity. That being said, while an improvement in lung function was witnessed, the results aren’t definitive.
Despite the early nature of the data, Flynn sees the next data readout, which is slated for 2021, as a major possible catalyst. “For MRT5005 we see the most straightforward path to market and unmet need being the ~10% of CF patients with splice mutations where Vertex Pharmaceuticals (VRTX)’s drugs are not effective, which we project could be a ~$1.9 billion peak opportunity,” he commented.
VRTX has developed several oral drugs called CF correctors or potentiators, that when used in combination improve the function of the existing CFTR protein in the majority of CF patients and thus, drive improved outcomes, which has made them the standard of care.
However, these therapies only work in patients with at least one F508del mutation, which represents roughly 90% of patients with CF. For the other 10% of CF patients whose bodies don’t make the CFTR protein, the drugs don’t have anything to target. The analyst added, “TBIO believes there is also significant unmet need beyond this ~10% of CF patients, including an incremental ~20% of patients that either have a suboptimal lung function (FEV1) response to VRTX’s drugs or cannot tolerate them.” If that wasn’t enough, TBIO is collaborating with Sanofi-Aventis on a COVID-19 vaccine, which could make its way to the clinic later this year.
To this end, data could come by 1H21. “However, PFE/BNTX’s upcoming Phase 2/3 COVID-19 mRNA vaccine data will likely represent one of the first definitive readouts on vaccine efficacy and safety (in addition to MRNA and AZN) and in our view, there are three likely outcomes, which also have implications for TBIO,” Flynn stated. As part of this collaboration, the companies are also advancing preclinical development vaccine programs against several other targets including influenza, viral pathogens and bacterial pathogens.
What’s more, Flynn argues that TBIO represents a possible M&A target as “the company has a novel platform technology (mRNA), a wholly owned clinical stage asset (MRT5005), and a broad partnership covering mRNA vaccines for infectious diseases, which could become de-risked over the near to medium-term.” Given all of the above, Flynn sides with the bulls. To kick off his coverage, he puts a Buy rating and $19 price target on the stock. This target brings the upside potential to 29%. (To watch Flynn’s track record, click here) Are other analysts in agreement? They are. Only Buy ratings, 5 to be exact, have been issued in the last three months.
Therefore, the message is clear: TBIO is a Strong Buy. The $27.50 average price target suggests shares could climb 87% higher in the next year. (See Translate Bio stock analysis on TipRanks) Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.