Fears of contagion in the global financial system and uncertainty about interest rates have weighed on investor sentiment in recent weeks, but opportunities remain amid market volatility, according to Goldman Sachs. “The macro backdrop remains uncertain… However, we see room for alpha opportunities with a spread of returns across sectors,” Goldman analysts led by John Sawtell wrote in a March 28 note. In equities, Goldman believes the current investment climate is benign for European equities, despite an investor preference for US equities. The Bank favors companies in value sectors that pay dividends, as well as select defensive and growth stocks in the market. Companies with stronger balance sheets are also expected to perform better in the current environment. Off-Consensus Buys The bank identified a number of stocks that were picked off-consensus, with each stock rated a “buy” by less than 50% of the analysts covering it. Swedish mining equipment maker Epiroc is on the list given the bank’s optimistic long-term outlook for mining spending and the company’s “best” margins and returns. The bank also likes Spanish telecoms company Telefonica for its “improving” revenue growth prospects and “better” profitability. Deutsche Bank is also on the Goldman list. Shares of the troubled bank have fallen 22% over the past month on fears it could become the next Credit Suisse, although analysts have been quick to point out that its financial position looks strong. The stock has since pared some losses, but still has a “buy” rating from just 48% of the analysts who cover it. Goldman gives Deutsche Bank a 114% upside potential. Value Buys with Earnings Rising Goldman also looked for buy-rated stocks that trade at attractive valuations relative to their own history and the market, and where the bank’s analysts see upside risks to consensus earnings estimates. Oil company BP is one such stock. Goldman believes BP is “on the cusp” of delivering one of the industry’s strongest pipelines for new oil and gas projects and capitalizing on positive momentum in gas trading. This should support a double-digit free cash flow yield in 2023, the bank added. Shell and Repsol are among the other energy names on the list, while Mercedes, Porsche and BMW are the only automakers to appear on screen. UBS, which recently jumped in with a bailout for ailing Credit Suisse, is also on Goldman’s screen with a potential upside of 104%. The bank gave British telecoms company BT Group a 101% upside. – CNBC’s Michael Bloom contributed to the coverage
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