Goldman Sachs sent investors its “differentiated buy” list of stocks its analysts think are more bullish than average estimates.
All of the names on the list had ‘buy’ ratings from less than 50% of Wall Street analysts, an average earnings metric estimate at least 5% lower than Goldman’s, and were trading at least 10% below Goldman’s target price.
These names appear underappreciated by the market and could generate alpha for investors with a contrarian view.
Only 18% of analysts are giving Twitter stock a buy rating. TWTR is trading 29% below Goldman’s target.
Twitter has returned to its pre-pandemic highs as an increase in user growth rate helped offset weak advertising in the most recent quarter.
Twitter reported that monetizable daily active users grew nearly 34% year-over-year, which was the fastest increase in recent quarters.
Growth was pandemic-driven. People are constantly on the lookout for information, which has increased the growth of social media users. Video usage has increased as everyone seeks to occupy their time at home.
The company is growing users but is still not turning them into profitable relationships. Adjusted loss per share was $1.39 on revenue of $683 million.
Twitter expenses rose 5% year-over-year, against a drop of 19% in revenue. Supercharged user growth means nothing if it doesn’t come with supercharged revenue growth.
Twitter stock is also overvalued, with a very high five-year PEG of 66.4. Earnings are expected to decline by 36% annually on average over the next five years. The stock looks due for a correction.
Several hotel stocks made Goldman’s list, including Hyatt Hotels. Only three of the 20 analysts who cover the stock have a buy rating. The stock was trading 10% below Goldman’s target when it was released. The hotel stock looks like a risky bet.
Like many stocks in the travel industry, Hyatt has been hit badly this year, as the pandemic has slowed leisure and business travel. Shares have lost 40% since the start of the year.
Hyatt Hotels released second-quarter results that show how deep the pain of travel bans and hotel closures has been for the accommodation industry.
Revenue per available room fell 89% globally during the period. The company reported an adjusted net loss of $1.80 per share.
The recent spike in coronavirus cases weighed on what was a nascent travel resumption in the U.S. A vaccine could encourage people to travel more, but we might not get one for several months.
Even with a vaccine, people might not travel as much as they did before the pandemic. Millions of Americans have lost their jobs, and many won’t get it back. With less money, Americans prefer to spend on essential items than travel. Hyatt shares are also expensive with a forward P/E of 72 and a five-year PEG of 5.
JetBlue is another travel industry stock on Goldman’s list that you might want to stay away from. Goldman has priced in a 45% upside for JetBlue, but just 25% of analysts have ‘buy’ ratings on the stock.
JetBlue had a rough second quarter. Sales fell about 90% year-on-year to $215 million , while the company lost $2.02 per share.
As the pandemic’s effects persist, JetBlue’s results won’t return to near-normal levels until 2021.
Although there was a strong recovery from the April lows, traffic leveled off in July. With the rise in coronavirus cases, bookings are flattening.
Video: Airlines Are in a Very Critical Situation
For airlines to experience a strong recovery, these trends will need to pick up again. For this to happen, we’ll need to see cases drop significantly or have a vaccine. Until then, JetBlue’s bumpy ride will continue. The U.S. economy won’t recover as fast as Goldman is hoping.