Five stocks Goldman believes will beat the Street and rally this earnings season

Published Wed, Oct 13 20214:21 PM EDTUpdated Wed, Oct 13 20214:35 PM EDT

Goldman Sachs has pointed to several stocks for contrarian investors that it believes, more strongly than other Street analysts, are poised to rally as earnings season kicks off this week. The firm's analysts' price targets suggest more upside potential than at any time since 2019 — more than 14% over the next 12 months compared to S & P 500 stocks in its coverage universe, Goldman said in a note to investors Wednesday. Based solely on the relationship with quarterly earnings, Goldman expects stocks to rise 6% this quarter. Goldman screened for the top 25 opportunities out of the 1,000 companies in its coverage universe, considering stocks with earnings greater than five cents per share for the next four quarters. Then, it filtered for stocks on which its analysts are above or below Thomson Reuters' consensus for the upcoming quarter and for the year "on a key financial metric." Goldman also recommend buying out-of-the-money calls on these stocks. "Single stock put-call skew is at its highest level in over a year," the note said. "Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months)." Here are five of their "most out-of-consensus" picks for the quarter. Goldman sees 37% upside to Uber over the next 12 months, and its analysts' earnings estimates for the company are 20% higher than the consensus. The ride-sharing company could be the next large-cap platform ecosystem according to analyst Eric Sheridan. The closing gap between supply and demand should lead to more normalized rider pricing, demand improvements and pre-Covid levels of profitability, he said. Among the top banks, Goldman sees Bank of America , which reports Thursday morning, as one of the largest earnings beneficiaries of "significant remixing of cash into securities." It sees 7% upside, ahead of the consensus estimate by 10%. Among smaller banks, Signature Bank is poised for a revenue beat driven by loan growth, according to Goldman, which sees 15% upside to the stock. Analyst Ryan Nash's earnings estimate is 7% above consensus this quarter and 5% above for the next four quarters. Macro indicators can support Lowe's demand beyond 2021, according to analyst Kate McShane. She sees 12% upside to the stock and said it's better positioned than it was six months or even a year ago due to pulling forward seasonal inventory purchases earlier in the year. The outdoors retailer Yeti is a "growth compounder with best in class authentic brand positioning," the note said. Goldman sees 44% upside to the stock, with an EPS estimate 8% above consensus for the current quarter and 3% above for the next four quarters.

A Bank of America branch in San Francisco on Jan. 14, 2021.

David Paul Morris | Bloomberg | Getty Images

Goldman Sachs has pointed to several stocks for contrarian investors that it believes, more strongly than other Street analysts, are poised to rally as earnings season kicks off this week.