Is it time for the bears to finally come out of hibernation? Not so fast, says Goldman Sachs. Volatility has ruled the Street recently, leading some to conclude that those with a more pessimistic outlook had been vindicated, but the firm believes stocks can still climb higher.
According to Goldman Sachs’ head of U.S. equity strategy, David Kostin, the S&P 500 could hit 5,100 by next year. This would reflect gains of 10% should the index ultimately reach this target.
“If you’re looking for a good hedge on inflation, the equity market is certainly one area to focus on,” Kostin opined.
Given Kostin’s outlook, we wanted to check out three stocks scoring major praise from Goldman Sachs. Not only have they been given a Buy rating, but the firm’s analysts also see at least 100% upside potential on tap for each. Using TipRanks’ database, we found out that all three tickers have gotten a thumbs up from analysts at other firms as well. Let’s take a closer look.
ReNew Energy Global (RNW)
Let’s start on the Indian subcontinent, a region that is frequently overlooked but shouldn’t be. India has nearly 1.4 billion people, an economy that is emerging into first-class status, and boasts both and expanding middle class and expanding modern industries from autos to tech. ReNew Energy is the country’s largest renewable energy provider, counting by power generation capacity. ReNew has over 10.3 GW of clean energy generation online or committed, and is looking to expand. The company generates its power from wind and solar farms, and from one hydropower plant.
This year’s rising markets have prompted a wave of new public offerings, through both traditional IPOs and through SPAC transactions. ReNew took the latter route; in August, the company entered business combination with RMG Acquisition Corporation II. Approval came from RMG’s shareholders on August 16, and the RNW ticker started trading on August 23. The move was notable because it made ReNew one of India’s fist billion-dollar unicorns on the US markets. The company currently has a market cap of $3.19 billion.
In November, ReNew released its first quarterly financials as a public company. Total revenue for Q2 FY22 was reported at $287 million (taking into account exchange rates at the time, and conversion from Indian rupees), which was up an impressive 44% yoy. Quarterly earnings were positive, at 15 cents per share.
With ReNew shares changing hands for $8 apiece, Goldman Sachs analyst Vinit Joshi sees an attractive entry point for investors.
"We think the share price is discounting a combination of India renewable installations significantly below government targets, elevated receivable days as well as a higher cost of debt. We see favorable risk reward with 27% downside in our bear case and 195% upside in our bull case scenario. We see catalysts such as (1) new project completion and wins, (2) declining interest cost, (3) working capital release, (4) vertical integration and (5) potential Electricity Amendment Bill to drive the share price in the medium term. Risks include higher interest rates, fiercer competition, lower TAM/market share, unfavorable regulations, higher equipment cost, INR depreciation," Joshi opined.
Lulu’s Fashion Lounge (LVLU)
For the second stock on our list, we’ll shift gears into the fashion industry. LuLu’s is an e-commerce company, featuring a full range of women’s wear: dresses, blouses and shirts, jackets and coats, skirts, pants, shoes, and accessories. The company caters to a worldwide customer base.
This company is new to the public markets. It held its IPO on November 11, and brought in $92 million. In the runup to the IPO, the company reported $54.5 million in revenue for the first three quarters last year; estimated revenues for the similar period this year run from $104.5 million to $106.2 million. Profits in the current-year period are estimated between $3.3 million and $3.9 million, and order of magnitude higher than the $377,000 reported for Q1 through Q3 last year.
Goldman Sachs' Brooke Roach has reviewed this stock as it entered the public markets, and initiated the firm’s stance at a Buy. This comes along with a $33 price target suggesting an upside of 193% by the end of 2022.
Backing this stance, Roach writes: “With growth opportunities across new customer acquisition and share of wallet gains through new category extension, we see solid runway for top line growth. Here we see LVLU’s favorable customer acquisition cost structure as a key competitive advantage. As we look ahead into 2022, we believe LVLU is competitively positioned across key areas of investor focus, including our outlook for positive comps in 1H22 and more limited exposure to wage and cost inflation.”
Overall, no fewer than 8 of Wall Street’s analysts have weighed in on this new ‘e-tailer’ stock and they all agree that it’s a Buy, for a Strong Buy consensus view. Shares are priced at $12.47 and the $20.13 average target indicates a 61% upside from that level.
Weave Communications (WEAV)
Wrapping up our list, we’ll look at Weave Communications, a tech company offering a software platform for communications and customer engagement, targeted at small- and medium-sized businesses. The company operates in the US, and boasts products for office phone lines and messaging, web assistant and digital forms, customer insights and scheduling, and email marketing – among other functionalities.
The company held its IPO just a month ago, and the WEAV ticker started trading on November 11. The IPO saw 5 million shares go on the market, at $24 each. This was below the expected pricing of $25 to $28. Overall, Weave raised $120 million in total proceeds, and is currently boasts a market cap of $921 million.
Weave released its 3Q21 results last week, and showed reason for optimism going forward. Revenue came in at $30.3 million, up 42% yoy, and customer locations, at 22,553, grew by 31%. The company launched its product in the home services market, adding another vertical to its offerings. All-in-all, a sound release for the first report as a public company.
Goldlman Sachs' Kash Rangan is bullish on Weave, noting the new vertical expansion as well as a generally advantageous position. Rangan describes the company’s current situation and forward prospects: “Weave is in the early days of addressing a $8bn+ market with a unique platform. Industry growth levers include small office digitization, customer engagement, cloud, and digital payments. Weave is ~10% penetrated into the dental vertical and is in the early stages of penetrating other medical and home services verticals…."
“Looking into F22, we see modest upside to our revs estimates driven by: 1) sustained location growth as incremental sales reps hires become productive, 2) incremental contribution from Weave Payments, Analytics, Forms, and 3) penetration into the Home Services market,” the analyst added.
It should be unsurprising, then, that Rangan rates WEAV a Buy. Not to mention his $37 price target puts the upside potential at 154%.