Goldman Sachs picks 12 global stocks to buy ahead of a surge in profit

Published Tue, Jun 29 202111:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Goldman Sachs have picked a slew of global stocks with "pricing power" in the face of rising inflation — and some of their stock picks have upside potential of 30% or more. The prospect of rising inflation has sent jitters through the market over the past few months, and an increase in the price of wages and commodities have squeezed profit margins for some firms. But the Goldman analysts said company margins were set for a "very rapid" post-Covid recovery as they identified stocks that can beat the rise. "European net income margins will bounce back to their pre-Covid level as soon as this year, peak in 2022 and modestly contract in 2023. This very rapid recovery is a function of the strong GDP acceleration that we expect," the analysts led by Jessica Binder Graham wrote in a research note published last week. Here are a dozen of Goldman's buy-rated picks: Consumer goods and pharma Goldman's picks include Unilever — which it said has a potential 10% upside to its price target over the next 12 months — and drinks company Carlsberg , with 7%, as well as sportswear firm Adidas , with 16%. Pharmaceuticals giant Bayer is also on its list, with a potential 38% upside to its price target. Machinery and chemicals Italian equipment firm CNH Industrial is a pick for the bank, which estimated a potential 20% upside to its price target. It also chose Dutch paint firm AkzoNobel , with a 14% potential upside, and ingredients company DSM , with an estimated 12% upside potential. Telecoms Goldman's telco stock picks include Vodafone , with a 38% potential upside to its target price, Swedish company Tele2 , with an estimated 37%, and Dutch group KPN , with 21%. Infrastructure The bank chose train operator Getlink , which has an estimated upside of 18% to its price target, and transport firm Ferrovial with 10%. Goldman's analysts examined post-recession recoveries over the past 40 years and said that the price of consumer goods have usually risen faster than wages. Input prices — the cost of producing goods — have "almost always" gone up faster than output prices in the first two years of a recovery, they said. However, the analysts added that net income margins have still "sharply" expanded during this period, and they expect a similar pattern in the post-pandemic recovery. "The unprecedented level of savings should allow companies to make even more proactive price increases," the analysts added. "Mentions related to inflation have surged during the 1Q earnings season, more than comments around labour costs or input costs. Many companies have already raised prices," they wrote. The stocks above are included in Goldman's screen for companies in Europe's STOXX 600 index that are exposed to commodities and had an expansion in gross margin in 2018 versus 2016. "Further, we only include companies that expanded gross margins in the last five years prior to 2020," the analysts wrote. "This has never prevented net income margins from expanding sharply during this stage. Usually, it is in the third year of the recovery that output prices catch-up and rise faster," the analysts wrote.

Adidas's Ivy Park Collection, a collaboration with Beyonce, shown in January 2020.

Source: Adidas

Analysts at Goldman Sachs have picked a slew of global stocks with "pricing power" in the face of rising inflation — and some of their stock picks have upside potential of 30% or more.