AI, EVs and more: Goldman names 5 'compelling' stocks to play major themes — giving one 60% upside

Published Thu, Aug 24 20237:58 PM EDT

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

Analysts at Goldman Sachs named five stocks to play themes including artificial intelligence, electric vehicles and energy-efficiency, with two on its conviction list: Mercedes-Benz and Daikin Industries . Its picks are buy-rated names "whose exposure to enduring themes complements a compelling equity story," according to a research note published Aug. 21. The bank named carmaker Mercedes-Benz as its top pick among European autos for its focus on luxury EVs. The analysts described it as a carmaker "whose pivot to luxury is reinvigorating margins," adding that the stock is trading at a "notable discount." Goldman's analysts see "growing evidence the company's decision to prioritize electrifying the top end of its portfolio has helped Mercedes maintain its margins in the 12-14% range despite selling more BEVs, which tend to be less profitable than ICE vehicles." BEVs are battery electric vehicles. ICE refers to internal combustion engines. The bank gave Mercedes' stock an estimated 48% upside to its 12-month price target. Taiwan Semiconductor Manufacturing Company is also on Goldman's list, tapping into AI, 5G and EV trends, the bank said. TSMC reported last month that its quarterly revenue fell 10% year over year , but Goldman expects a "sharp rebound" in the next two years on the back of demand for high-performance chips. The bank forecast revenue growth of 27% in 2024 and 19% in 2025. "At a valuation that is at the lower end of the range for the past ten years, TSMC shares do not reflect the higher multiple that is justified by its position as a key generative AI enabler," the analysts said. Goldman gave the stock an estimated 30% upside to its 12-month price target. Clean energy Japanese heating, ventilation and air-conditioning specialist Daikin Industries plays to Goldman's energy-efficiency theme and has "a track record of meeting or exceeding profitability targets and posting sales growth that outpaces global peers," the bank said. The bank also likes firm's growing U.S. presence, saying it's a region "where the company's top-line gains are beating local competitors," as well as its flagship energy-efficient air conditioner Daikin Fit. The bank gave the stock an estimated 54% upside to its 12-month price target. Darling Ingredients , a feedstock and renewable diesel company in the United States, has a 60% upside to Goldman's 12-month price target, the bank said. Goldman said the stock is undervalued and set to benefit from President Joe Biden's Inflation Reduction Act (IRA), which has $369 billion in provisions to tackle climate change . Darling is the largest renewable diesel producer in North America, the bank said, and it could benefit from the IRA as it starts to make sustainable aviation fuel. OCI , a Dutch producer of nitrogen, hydrogen and methanol, is trading at a discount to its peers, according to Goldman. "OCI is outpacing many competitors with the depth of its push to use core products including ammonia and methanol to build up its share of the global value chain for clean hydrogen and clean fuels," Goldman's analysts wrote. The bank estimates a dividend yield of more than 7% this year, "among the most attractive in the chemicals space," it said. "Our analysts predict any announcement about targets or expansion plans for OCI's clean fuels projects can act as a catalyst for the shares," it added. — CNBC's Michael Bloom and Emma Newburger contributed to this report.