Goldman Sachs Value Stocks: Top 10 Stock Picks

Published on November 10, 2022 at 12:06 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss the top 10 value stocks from the Goldman Sachs portfolio. If you want to see more stocks in this selection, check out Goldman Sachs Value Stocks: Top 5 Stock Picks.

Jason Brady, president and CEO of Thornburg Investment Management, joined CNBC’s ‘The Exchange’ on November 8, where he noted that growth stocks like Meta Platforms, Inc. (NASDAQ:META) are now trading in value territory after losing billions in market capitalization this year alone. He contended that although the future of Meta hinges upon the ROI from its hefty metaverse investment, it is still a cash flow positive operation in terms of core business categories. However, he warned investors to be careful when viewing every beaten down stock as a buying opportunity, to save themselves from value traps.

In the beginning of November, value stocks posted large gains compared to their growth counterparts. The Russell 1000 Value index climbed 10.1% in October, outperforming its growth peers by 4.3%. Similarly, The iShares Russell 1000 Value ETF (IWD) saw inflows of $444 million last month during the rally. Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy, told CNBC on November 3:

“We continue to prefer value over growth, with growth in the middle of a perfect storm of higher rates + weakening fundamentals. Value factors have also historically benefitted from year-end seasonality.”

Some of the best value stocks in the Goldman Sachs portfolio include JPMorgan Chase & Co. (NYSE:JPM), Ford Motor Company (NYSE:F), and Alphabet Inc. (NASDAQ:GOOG).

Our Methodology

We selected the top 10 value stocks from the Goldman Sachs portfolio as of the end of the second quarter of 2022 for this analysis. The stocks are arranged according to Goldman Sachs’ stake value in each holding. Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022 was used to assess the hedge fund sentiment around the securities.

Photo by Mirza Babic on Unsplash

Goldman Sachs Value Stocks: Top Stock Picks

10. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 80

Goldman Sachs’ Stake Value: $1,232,908,000

P/E Ratio as of November 10: 17.61

The Home Depot, Inc. (NYSE:HD), an American home improvement retailer, is one of the top Goldman Sachs value stocks to monitor. Goldman Sachs owns 4.5 million shares of The Home Depot, Inc. (NYSE:HD) as of Q2 2022, worth $1.2 billion and representing 0.27% of the total securities.

On November 9, MKM Partners analyst David Bellinger maintained a Neutral rating on The Home Depot, Inc. (NYSE:HD) but lowered the firm’s price target on the shares to $312 from $330 as part of a broader research note on Home Improvement names. Mixed signals across the housing sector make the forward demand outlook uncertain, although Q3 comps are likely to have held significantly firm for The Home Depot, Inc. (NYSE:HD), the analyst told investors in a research note.

According to Insider Monkey’s data, 80 hedge funds were bullish on The Home Depot, Inc. (NYSE:HD) at the end of the second quarter of 2022, compared to 75 funds in the prior quarter. Ken Fisher’s Fisher Asset Management was the leading position holder in the company as of Q2 2022, with 8.35 million shares worth $2.3 billion.

Like JPMorgan Chase & Co. (NYSE:JPM), Ford Motor Company (NYSE:F), and Alphabet Inc. (NASDAQ:GOOG), The Home Depot, Inc. (NYSE:HD) is one of the top value plays to consider in the current market.

Here is what Diamond Hill Capital specifically said about The Home Depot, Inc. (NYSE:HD) in its Q2 2022 investor letter:

“The Home Depot, Inc. (NYSE:HD) is a high-quality operator in the home improvement industry. Macroeconomic concerns, particularly the rise in mortgage rates, caused the share price to pull back and trade at a greater discount to our estimate of intrinsic value. We believe Home Depot is well positioned to continue gaining share due to its premium real estate locations, strong operations and recent investments in its supply chain. We like Home Depot’s exposure to the professional customer and believe in its ability to take market share in this segment as we believe home improvement spending has the potential to remain resilient in upcoming years.”

9. Cisco Systems, Inc. (NASDAQ:CSCO)

Number of Hedge Fund Holders: 63

Goldman Sachs’ Stake Value: $1,299,884,000

P/E Ratio as of November 10: 15.57

Cisco Systems, Inc. (NASDAQ:CSCO) designs and sells products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. Goldman Sachs owns 30.5 million shares of Cisco Systems, Inc. (NASDAQ:CSCO) worth $1.3 billion, representing 0.29% of the total Q2 securities.

On November 9, Evercore ISI analyst Amit Daryanani added Cisco Systems, Inc. (NASDAQ:CSCO) to the firm’s “Tactical Outperform” list, as he believes the company is positioned to announce October quarter results “inline to likely modestly ahead of street expectations” and offer January quarter and FY23 guidance that “should bracket current street expectations.” He has an Outperform rating and a $56 price target on Cisco Systems, Inc. (NASDAQ:CSCO) shares.

According to Insider Monkey’s data, 63 hedge funds were bullish on Cisco Systems, Inc. (NASDAQ:CSCO) at the end of the second quarter of 2022, compared to 66 funds in the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors is one of the leading position holders in the company, with 7.7 million shares worth $329.3 million.

In its Q1 2022 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and Cisco Systems, Inc. (NASDAQ:CSCO) was one of them. Here is what the fund said:

“Cisco Systems (NASDAQ:CSCO) traded lower as investors weighed how supply chain concerns would impact sales growth. The company has been upgrading its switching and routing offerings, which should lead to strong demand as on-site locations upgrade infrastructure.”

8. AbbVie Inc. (NYSE:ABBV)

Number of Hedge Fund Holders: 71

Goldman Sachs’ Stake Value: $1,319,500,000

P/E Ratio as of November 10: 19.68

AbbVie Inc. (NYSE:ABBV), an American pharmaceuticals company, is one of the best Goldman Sachs value stocks to consider. Goldman Sachs owns 8.6 million shares of AbbVie Inc. (NYSE:ABBV) as of the second quarter of 2022, worth $1.3 billion and representing 0.29% of the total holdings.

On October 28, AbbVie Inc. (NYSE:ABBV) declared a $1.48 per share quarterly dividend, a 5% increase from its prior dividend of $1.41. The dividend is distributable on February 15, 2023 to shareholders of record on January 3. AbbVie Inc. (NYSE:ABBV)’s dividend yield on November 10 came in at 4.01%.

Societe Generale analyst Justin Smith on November 8 downgraded AbbVie Inc. (NYSE:ABBV) to Hold from Buy with a price target of $140, down from $155. He is cutting his 2022-23 non-GAAP EPS forecasts by up to 11% given the more challenging conditions faced by AbbVie Inc. (NYSE:ABBV)’s blood cancer and Botox aesthetics franchises, said the analyst, who noted that his updated non-GAAP EPS estimates are now about 9% below the Visible Alpha consensus.

According to Insider Monkey’s data, 71 hedge funds were long AbbVie Inc. (NYSE:ABBV) at the end of June 2022, compared to 76 funds in the prior quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the largest position holder in the company, with 4.2 million shares worth $654 million.

Here is what Baron Funds specifically said about AbbVie Inc. (NYSE:ABBV) in its Q3 2022 investor letter:

“AbbVie Inc. (NYSE:ABBV) is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”

7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

Number of Hedge Fund Holders: 72

Goldman Sachs’ Stake Value: $1,322,375,000

P/E Ratio as of November 10: 14.29

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the leading semiconductor firms in the world. It is also one of the premier Goldman Sachs value stocks to watch. Goldman Sachs, as of Q2 2022, held more than 16 million shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) worth $1.3 billion, representing 0.29% of the total securities.

Goldman Sachs analyst Bruce Lu on October 13 downgraded Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to Buy from Conviction Buy and slashed the price target to $89 from $126. The analyst observed that the company’s management has turned “more conservative”, as it has acknowledged that it sees an impact from demand weakness, especially for its N7 nodes.

According to Insider Monkey’s Q2 data, 72 hedge funds were bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), compared to 81 funds in the preceding quarter. Ken Fisher’s Fisher Asset Management is the biggest stakeholder of the company, with 26.3 million shares worth $2.15 billion.

Baron Funds made the following comment about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2022 investor letter:

“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) detracted from performance due to the global macroeconomic slowdown and softening demand for consumer electronics. We retain conviction that Taiwan Semi’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, and IoT, will allow the company to deliver strong revenue growth over the next several years.”

6. Meta Platforms, Inc. (NASDAQ:META)

Number of Hedge Fund Holders: 184

Goldman Sachs’ Stake Value: $1,543,126,000

P/E Ratio as of November 10: 9.09

Meta Platforms, Inc. (NASDAQ:META) has been trading in value territory lately, with a price to earnings ratio of just 9.09. Goldman Sachs owns 9.6 million shares of Meta Platforms, Inc. (NASDAQ:META) as of the second quarter of 2022, worth $1.5 billion and representing 0.34% of the total portfolio.

On November 9, Itau BBA analyst Thiago Kapulskis raised the price target on Meta Platforms, Inc. (NASDAQ:META) to $120 from $102 and reiterated an Outperform rating on the shares. The “mounting pressure is finally making META’s management realize that more discipline is needed,” the analyst wrote in a research note. He views the recent layoffs and lower spending guidance as an indication that Meta Platforms, Inc. (NASDAQ:META) “acknowledges the problem.”

According to the second quarter database of Insider Monkey, 184 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META), compared to 200 funds in the prior quarter. Boykin Curry’s Eagle Capital Management is a prominent position holder in the company, with 7.3 million shares worth $1.18 billion.

In addition to JPMorgan Chase & Co. (NYSE:JPM), Ford Motor Company (NYSE:F), and Alphabet Inc. (NASDAQ:GOOG), Meta Platforms, Inc. (NASDAQ:META) is one of the top value stocks in the Goldman Sachs portfolio.

ClearBridge Investments made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q3 2022 investor letter:

“Meta Platforms, Inc. (NASDAQ:META), one of two overweights among the mega cap stocks, underperformed in the third quarter (-15.9%) and is the Strategy’s largest detractor year to date. Meta has also trailed mega cap advertising peer Alphabet, which we don’t own, as revenue growth has slowed due to tough comparables to a strong e-commerce environment in early 2021, negative impacts from Apple’s privacy changes and rising expenses.

While we have trimmed our position close to 20%, we remain invested as we do not think the stocks’ valuation at about 13x consensus 2023 earnings appropriately reflects its long-term earnings and free cash flow generation potential. Despite current revenue headwinds, we believe Meta is well-positioned to navigate industry wide changes to advertising targeting and its transition to the Reels short-form video format will monetize in the coming years, helping to re-accelerate revenue growth.

We also welcome Meta’s implementation of cost-cutting measures, which should help uncover the company’s high underlying profitability. Lastly, we see Meta’s investments in augmented reality as a call option for long-duration investors.”

Click to continue reading and see Goldman Sachs Value Stocks: Top 5 Stock Picks.

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Published on May 1, 2024 at by Inan Dogan, PhD

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