Goldman likes these stocks amid market volatility — and two are on its conviction list

Published Fri, May 6 20221:07 AM EDT

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

Goldman Sachs has listed a number of buy-rated stocks it says have strong fundamentals and above-average returns, which investors could gravitate to in an uncertain market. The analysts' picks are companies it expects to reduce greenhouse gas emissions, as investors become increasingly focussed on the issue. "Investor focus will heighten towards those companies able to successfully decarbonize their operations. In addition, we continue to believe investors will gravitate towards companies that have strong fundamentals via above-average corporate level returns, particularly in times of market volatility/uncertainty," the analysts, led by Brian Singer, wrote in a research note dated May 2. It comes after a volatile start to the year for stocks. The Dow Jones Industrial Average ended the first quarter down 4.6%, while the S & P 500 fell 4.9% and the Nasdaq lost 9%. Just this week, the S & P hit new year-to-date lows on Monday and stocks sold off sharply on Thursday , with the Dow losing over 1,000 points and the Nasdaq sliding nearly 5%. In the note — published before Thursday's market turbulence — Goldman screened for companies it expects to reduce emissions through 2025 in line with the 1.5 degrees Celsius target set at the Paris climate accord in 2015. Its picks include Italian electric utilities firm Enel , which is on its conviction list — Goldman's list of its top buy-rated stocks. The analysts described the company as "the largest renewable developer globally," and it expects the firm to invest around 15 billion euros ($15.8 billion) a year between 2022 and 2025 in developing renewables further. "In addition, our colleagues expect Enel to benefit from the renewables super-cycle as a result of policy measures in Europe to limit the reliance on natural gas from Russia," the analysts stated. Also on the list is Swedish steel company SSAB , which Goldman says is aiming to reach net-zero emissions by 2030, versus a previous aim of 2045. The bank expects SSAB to invest 45 billion Swedish krona ($4.6 billion) between 2022 and 2030 to reach this goal. Brazilian electric utilities firm Cemig also makes Goldman's screen. The bank likes the fact the company is decommissioning a large thermal plant, which is operated with combustible oils, and strengthening its exposure to hydropower. In a separate screen, Goldman also named a number of oil and gas stocks it expects to have the highest expected reduction in scope 1 and 2 emissions — scope 1 emissions refer to those a company produces directly, while scope 2 also includes some emissions from the company's supply chain. ENI makes the list, with the analysts expecting the Italian energy firm to increase its natural gas production and reduce its oil production. The company is investing "significantly" in decarbonization projects and aims to be net-zero in terms of scope 1 and 2 emissions by 2035, the bank said. In the U.S., oil company Pioneer Natural Resources is on the screen — and Goldman's conviction list — for its moves toward electrification of equipment and also to renewables. The company aims to reduce its scope 1 and 2 greenhouse gas emissions by 50% by 2030, the bank said. Goldman noted that there are "multiple limitations" to its analysis — such as the fact that it only goes through 2025 — and stressed that it should be used as a starting point. - CNBC's Jesse Pound and Pippa Stevens contributed to this report.

A Goldman Sachs sign at at NYSE.

Brendan McDermid | Reuters

Goldman Sachs has listed a number of buy-rated stocks it says have strong fundamentals and above-average returns, which investors could gravitate to in an uncertain market.