Goldman names stocks with the greatest alpha opportunities, including one with 70% upside

Published Mon, Aug 7 20232:05 PM EDTUpdated Mon, Aug 7 20232:39 PM EDT

Microeconomic factors seem to be dominating the market action in 2023, and Goldman Sachs is offering up some opportunities to capture the greatest alpha in this environment. According to the Wall Street investment bank, micro factors and their contribution to the market are on the rise, accounting for 71% of the trailing six-month return for the median S & P 500 stock, up from 41% a year ago. Options pricing also reflects expectations for elevated return dispersion over the near term, Goldman Sachs chief U.S. equity strategist David Kostin said in a Friday note. "A micro-driven market typically means more opportunity for stock pickers to capture alpha," explained Kostin, referring to the return of an investment over and above a benchmark such as the S & P 500 . "The best stock picking opportunities arise in sectors where returns are driven by micro factors and the typical company in the sector carries a high level of firm-specific risk." Given this setup, Goldman constructed a list of 25 stocks with high "dispersion scores," meaning they are driven more by microeconomic factors than macroeconomic moves, and that stock return "cannot be explained by market, sector, size, or value factors." Consensus expectations call for the median stock on the list to rise 24%, versus 11% expected for the median S & P 500 stock. "These stocks ultimately present alpha generating opportunities for investors to apply directional views on fundamental outlooks or near-term catalysts," Kostin wrote. Here are some of the stocks that made the cut: Goldman named Moderna as one of the stocks best situated to generate the largest alpha, with a consensus price target implying the largest upside of the group, at about 71%. Shares have slumped about 44% year to date and lost 9% last week alone as the vaccine maker reported a decline in second-quarter revenues and a quarterly loss but lifted its Covid vaccine outlook. Goldman also highlighted SolarEdge Technologies . The company sold off nearly 23% last week on light third-quarter revenue guidance and second-quarter revenue that fell short of expectations. The stock has tumbled more than 36% on the year. Goldman also included solar stock Enphase Energy , down more than 49% year to date. The consensus price target suggests more than 49% upside for shares based on Friday's numbers. Netflix , Axon Enterprise , Illumina and Etsy were also included in the Goldman screen. — CNBC's Michael Bloom contributed reporting.