Goldman has a list of 2021 turnaround plays topped by Las Vegas Sands

Published Thu, Nov 19 202012:21 PM ESTUpdated Thu, Nov 19 202012:37 PM EST

(This story is for CNBC Pro subscribers only.) Amid a vaccine-driven rebound in stocks, Goldman Sachs said these shares can lead the charge thanks to their potential for a rebound in cash flow in 2021. "With investor attention centered around macro recovery and the recent rotation into value, we look at both of these through a cash ﬂow lens. We focus on the trajectory of free cash ﬂow, factoring in both ﬁnancial proﬁtability (Margin) and valuation (Yield)," Goldman Sachs analyst Deep Mehta said in a note to clients. To capitalize on this, Goldman is focusing on equities that its analysts expect will turn cash ﬂow proﬁtable in 2021or recover from a recent cash ﬂow downturn. Free cash flow is net income minus capital expenditures, which amounts to what's left over to spend on growing the business or returning money to shareholders. This money can be used for acquisitions, paying off debt or reinvestment. Goldman Sachs screened for stocks that are well-positioned for a positive cash ﬂow inﬂection in 2021, which should drive the companies' stocks, they believe. The firm made a list of buy-rated stocks with negative free cash flow in 2020 that are expected to inflect high in 2021 and 2022. "While some stocks on the list are ramping towards achieving cash ﬂow proﬁtability, others are recovering from a cash ﬂow downturn in 2020," Mehta told clients. Take a look at Goldman's list here. At the top of Goldman's list is hotel and casino company Las Vegas Sands . The hospitality company's stock is down nearly 20% in 2020 as hotels were forced to close during the pandemic lockdown. "LVS should see a rapid recovery in EBITDA as it captures share in Macau due to the combination of its investment in new product (Four Seasons & the Londoner) and exposure to the more resilient premium mass segment," said Goldman analyst Stephen Grambling. "Trades at a discount to its historical average despite being one of the few companies in our coverage to move to positive FCF." Goldman also likes automaker General Motors for a free cash flow inflection. GM, despite the pandemic, has reconfirmed plans to invest $20 billion from 2020 through 2025 in autonomous and electric vehicles. "Improvement in its higher-margin businesses (Gas Power Services, Commercial Aftermarket, Pharmaceutical Diagnostics) will result in FCF turning positive in 2021 and material acceleration in FCF growth through 2023 (7.4% FCF margin by 2023) given the restructuring actions that the COVID-19 pandemic has accelerated," Goldman analyst Joe Ritchie told clients. Goldman also likes Southwest Airlines as air travel starts to recover, Bunge and Array Technologies . In the energy space, Goldman likes Suncor Energy , Exelon and Cheniere Energy . Energy stocks have been the worst performing during the pandemic amid a plummet in oil prices. "Cheniere is well-positioned for a material FCF ramp as new terminals come online and capital spend declines," Goldman analyst Michael Lapides told clients. "We expect deleveraging over the next few years, and a ramp in capital allocation (including buybacks and implementation of a dividend)." Lapides said Cheniere's shares should continue to command a premium. Goldman also highlighted telecommunications company Infinera as a company it sees beneficiating from an inflection of free cash flow next year. "Well positioned to grow revenue and expand margins with multiple product ramps through 2021 and INFN's integrated model should also provide it with margin leverage," Goldman analyst Rod Hall told clients. "Expect FCF to turn positive for 2021 driven by continued margin expansion." Array Technologies and Accel Entertainment also make Goldman's list. — with reporting from CNBC's Michael Bloom.

Pedestrians pass in front of the Las Vegas Sands Corp. Venetian resort in Las Vegas, Nevada, U.S., on Tuesday, April 24, 2018. An agreement by Japanese lawmakers on casino guidelines will favor the building of larger resorts in big cities that could benefit operators such as MGM Resorts International and Las Vegas Sands Corp. Photographer: Bridget Bennett/Bloomberg via Getty Images

Bridget Bennett | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Amid a vaccine-driven rebound in stocks, Goldman Sachs said these shares can lead the charge thanks to their potential for a rebound in cash flow in 2021.

"With investor attention centered around macro recovery and the recent rotation into value, we look at both of these through a cash ﬂow lens. We focus on the trajectory of free cash ﬂow, factoring in both ﬁnancial proﬁtability (Margin) and valuation (Yield)," Goldman Sachs analyst Deep Mehta said in a note to clients.

To capitalize on this, Goldman is focusing on equities that its analysts expect will turn cash ﬂow proﬁtable in 2021or recover from a recent cash ﬂow downturn.

Free cash flow is net income minus capital expenditures, which amounts to what's left over to spend on growing the business or returning money to shareholders. This money can be used for acquisitions, paying off debt or reinvestment.

Goldman Sachs screened for stocks that are well-positioned for a positive cash ﬂow inﬂection in 2021, which should drive the companies' stocks, they believe. The firm made a list of buy-rated stocks with negative free cash flow in 2020 that are expected to inflect high in 2021 and 2022.

"While some stocks on the list are ramping towards achieving cash ﬂow proﬁtability, others are recovering from a cash ﬂow downturn in 2020," Mehta told clients.

Take a look at Goldman's list here.