Editor’s note: This article was first published in July 2014. All share prices, P/E ratios, price targets and expected returns are from July 2014. Several of these companies have since been renamed, merged or taken over, such as Michael Kors Holdings (now Capri Holdings) and Cerner (bought by Oracle).
Goldman Sachs has once again analysed companies on the US market to identify which stocks could be considered the cheapest, based on their current share price and the price target the bank assigns to each company. According to Goldman, many of these stocks could deliver returns of between 25% and 50%.
These are the stocks:
1. Michael Kors Holdings (P/E: 28)
This company designs all kinds of sportswear, footwear, clothing and accessories. It is present in 85 countries, and it is Goldman’s favourite, as the bank believes it could deliver a 51% return. Its current price is $91.38.
2. Delta Air Lines, Inc. (P/E: 2.95)
For this airline, Goldman expects a return of 49.8% (current price $36.96). Its consolidated revenue in June rose 4.5% year on year. It is one of the companies with the lowest P/E ratios on the market.
3. Cabot Oil & Gas Corporation (P/E: 42)
An oil and gas exploration company. Goldman estimates a 40% rise in its share price (current price $34.89).
4. PVH Corp (P/E: 48)
For those who don’t know it, this is the company behind brands such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD and Bass, among others. Its current price is $117, and Goldman expects a 37% return.
5. Netflix (P/E: 166)
Trend experts say Netflix can only keep growing in the short and medium term, since it has one of the most profitable businesses around, and one that has been solidly proven (streaming video). Although Netflix shares have returned 1,000% over the last five years, and more than 5,000% since the company went public, they trade at around $443, and Goldman believes they should still rise another 34% to reach what it considers their price target. The P/E of 166 can be read in two ways: 1. the stock is already too expensive, or 2. expectations for this company are enormous.
6. United States Steel Corporation (P/E: —)
Before the crisis, this steel company traded at around $186, while its shares are now at around $27. It has not had positive results (at least, it has not made a profit), although its shares are expected to take off. In fact, it has returned almost 50% over the last 12 months. Goldman believes the company is worth 30% more. It’s worth analysing.
7. The Goodyear Tire & Rubber Company (P/E: 15)
One of the best-known manufacturers and distributors of tyres, and of chemical products as well. Although its first-quarter results were weaker than the year before ($4,500 vs $4,900), Goldman expects the stock to gain 30%. Its current price is $27.34. It has returned 150% over the last five years.
8. Regeneron Pharmaceuticals Inc. (P/E: 89)
This drugmaker keeps piling up dizzying gains (1,600% over the last five years). In recent weeks its shares have climbed sharply again because one of its drugs for a vision disorder has been recommended for approval. It currently trades at around $310, and Goldman believes it could rise 28%. Personally, I don’t find it very attractive.
9. Simon Property Group (P/E: 37)
For this real estate investment company, Goldman estimates a 28% rise. Its current price is $167.
10. Cerner Corporation (P/E: 44)
A provider of health technology solutions, services, devices and hardware. Its shares have not stopped rising since it went public, and they currently trade at $50.93. Goldman believes the stock could rise another 28%.
Further reading
- The 10 most profitable stocks of the last 20 years
- The most and least profitable investments according to Gary Shilling
- 20 S&P 500 stocks with upside potential
Featured image: Potro, CC BY-SA 4.0, via Wikimedia Commons.
