Goldman Sachs: These 'conviction list' global stocks will benefit from a circular economy boom

Published Mon, Nov 13 20237:07 PM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

Rising commodity prices, increased regulation and a growing recognition of sustainability benefits are set to be "key catalysts" of the circular economy, Goldman Sachs said, naming its "conviction list" stocks to play the theme. The circular economy is a system that aims to keep materials and resources in use for as long as possible, with a focus on reuse, rather than dispose. "While regulators, corporates, and investors have placed much emphasis on achieving Net Zero emissions and Biodiversity goals, we believe the critical role a Circular Economy will play in solving for both has been overlooked, particularly as a lack of available resources threatens the speed, scale, and affordability of a clean energy transition," Goldman's analysts wrote in a Nov. 2 note. Quoting estimates from McKinsey, Accenture and the United Nations Environment Program, the bank said that the economic benefits of the circular economy range from $2.9 trillion to $4.5 trillion by 2030. Conviction list stocks The bank named a number of "key stocks exposed to the theme," including Dassault Systemes and SMC Corporation . Both are on the bank's "conviction list" of top buy-rated stocks. Calling Dassault Systems a "digital enabler to the circular economy," the investment bank said it "has defined the product life cycle market, with its platform approach spanning design, collaboration, simulation and manufacturing in one platform." The analysts said it has a competitive advantage when it comes to launching new products and services, adding: "Dassault sees a multi-year tailwind to growth from the sustainability theme, as it is a key partner and enabler for its customers in achieving sustainability targets." The bank has a buy rating on the stock with a 12-month price target of 57 euros ($60.82), giving it an upside of 40% from its Nov. 9 close. Goldman analysts also like Japanese engineering company SMC Corporation under this theme. They give it a price target of 103,000 Japanese Yen ($925.79), or upside of around 35%. Noting that the stock "looks slightly undervalued versus other global factory automation companies," the analysts also like the efficiency of its products. "Our analyst expects demand for these products to grow, supported by greater focus on sustainability," they added. Other global stocks on Goldman's list of picks set to benefit from the circular economy include Japanese electronics giant Hitachi , Dutch conglomerate Philips and U.S. waste management company Republic Services , with all three also on the bank's conviction list. — CNBC's Michael Bloom contributed to this report.