Goldman Sachs Value Stocks: Top 10 Stock Picks

In this article, we discuss the top 10 value stocks from the Goldman Sachs portfolio.

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. 

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. 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. 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., the analyst told investors in a research note.

According to Insider Monkey’s data, 80 hedge funds were bullish on The Home Depot, Inc. 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., Ford Motor Company, and Alphabet Inc., The Home Depot, Inc. 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. in its Q2 2022 investor letter:

“The Home Depot, Inc. 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. worth $1.3 billion, representing 0.29% of the total Q2 securities. 

On November 9, Evercore ISI analyst Amit Daryanani added Cisco Systems, Inc. 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. shares.

According to Insider Monkey’s data, 63 hedge funds were bullish on Cisco Systems, Inc. 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. was one of them. Here is what the fund said:

“Cisco Systems 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. as of the second quarter of 2022, worth $1.3 billion and representing 0.29% of the total holdings. 

On October 28, AbbVie Inc. 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.’s dividend yield on November 10 came in at 4.01%. 

Societe Generale analyst Justin Smith on November 8 downgraded AbbVie Inc. 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.’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. 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. in its Q3 2022 investor letter:

“AbbVie Inc. 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 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 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, 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 in its Q3 2022 investor letter:

“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited 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. 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. 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. 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. “acknowledges the problem.” 

According to the second quarter database of Insider Monkey, 184 hedge funds were bullish on Meta Platforms, Inc., 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., Ford Motor Company, and Alphabet Inc., Meta Platforms, Inc. is one of the top value stocks in the Goldman Sachs portfolio. 

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

“Meta Platforms, Inc., 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.”

5. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 104

Goldman Sachs’ Stake Value: $1,609,282,000

P/E Ratio as of November 10: 10.95

JPMorgan Chase & Co., the American multinational financial services corporation and investment bank, is one of the top Goldman Sachs value stocks to watch. Goldman Sachs owns 14.3 million shares of JPMorgan Chase & Co. worth $1.60 billion as of June 2022, representing 0.36% of the total securities. 

On October 17, Citi analyst Keith Horowitz reiterated a Buy recommendation on JPMorgan Chase & Co. with a $135 price target following the company’s Q3 results. The analyst noted the bank is “hitting on all cylinders” and that present share levels provide an “excellent entry point” for a “quality franchise.”

Among the hedge funds tracked by Insider Monkey, 104 funds were bullish on JPMorgan Chase & Co. at the end of June 2022, compared to 110 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the biggest stakeholder of the company, with approximately 8 million shares worth $900 million. 

Here is what Vltava Fund has to say about JPMorgan Chase & Co. in its Q3 2022 investor letter:

“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.

JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.

A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”

4. Ford Motor Company (NYSE:F)

Number of Hedge Fund Holders: 46

Goldman Sachs’ Stake Value: $2,168,347,000

P/E Ratio as of November 10: 5.86

Ford Motor Company is a Michigan-based automaker that operates through three segments – Automotive, Mobility, and Ford Credit. Goldman Sachs owns 23.71 million shares of Ford Motor Company worth $2.16 billion, representing 0.48% of the total portfolio. 

On October 26, Ford Motor Company declared a quarterly dividend of $0.15 per share, in line with previous. The dividend is payable on December 1, to shareholders of record on November 15. The dividend yield on November 10 came in at 4.51%. 

Following what he called a “mostly in-line” quarter from Ford Motor Company and fiscal year guidance for $11.5 billion in adjusted EBIT that is about $1 billion ahead of his estimate, Morgan Stanley analyst Adam Jonas said that he views Ford Motor Company’s decision to wind up its Argo robotaxi business as “a positive that investors will appreciate over time.” He maintained an Overweight rating and a $14 price target on Ford Motor Company shares.

According to Insider Monkey’s data, 46 hedge funds were long Ford Motor Company at the end of June 2022, and D E Shaw held a leading position in the company, comprising more than 23 million shares valued at $257.6 million. 

Here is what Leaven Partners has to say about Ford Motor Company in its Q3 2022 investor letter:

“In our last quarterly letter, I briefly mentioned that the consensus estimates for corporate profits appeared to be a bit too sanguine. I referenced a Reuters article that reported, as of June 17, Wall Street expected S&P 500 earnings to grow by 9.6% in 2022, which was up from 8.8% in April and from 8.4% in January. That tune began to change at the end of July and accelerated in August and September, as major players, such as Ford, have recently issued profit warnings and/or have withdrawn guidance. In response, Wall Street has altered its outlook: lowering third-quarter profit growth to 4.6% from 7.2% in early August and slashing full-year profit growth to 4.5%.”

3. Starwood Property Trust, Inc. (NYSE:STWD)

Number of Hedge Fund Holders: 13

Goldman Sachs’ Stake Value: $2,345,738,000

P/E Ratio as of November 10: 8.39

Starwood Property Trust, Inc. (NYSE:STWD) is a Connecticut-based real estate investment trust with operations in the United States, Europe, and Australia. The REIT has four segments – Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing. It is one of the premier Goldman Sachs value stocks to consider. In Q2 2022, Goldman Sachs owned 23.8 million shares of Starwood Property Trust, Inc. worth $2.3 billion, representing 0.53% of the total holdings. 

On November 1, BTIG analyst Timothy Hayes maintained a Buy rating on Starwood Property Trust, Inc. but lowered the price target on the shares to $24 from $29 as he acknowledged there may be somewhat limited support by an 8% dividend yield given the current structure of interest rates. 

According to Insider Monkey’s Q2 data, 13 hedge funds were long Starwood Property Trust, Inc., compared to 15 funds in the preceding quarter. Amy Minella’s Cardinal Capital held the biggest stake in the company, comprising over 5 million shares worth $104.70 million. 

2. NRG Energy, Inc. (NYSE:NRG)

Number of Hedge Fund Holders: 29

Goldman Sachs’ Stake Value: $3,035,643,000

P/E Ratio as of November 10: 5.41

NRG Energy, Inc. (NYSE:NRG) is a Texas-based integrated power company that generates electricity using natural gas, coal, oil, solar, nuclear, and battery storage. The company serves residential, commercial, industrial, and wholesale customers. It is one of the top Goldman Sachs value stocks to invest in. Goldman Sachs, in the second quarter of 2022, held 28.2 million shares of NRG Energy, Inc. worth over $3 billion, representing 0.68% of the total portfolio. 

On October 21, NRG Energy, Inc. declared a $0.35 per share quarterly dividend, in line with previous. The dividend is distributable on November 15, to shareholders of record on November 1. The dividend yield on November 10 came in at 3.28%. 

According to Insider Monkey’s data, 29 hedge funds held stakes worth $1.3 billion in NRG Energy, Inc. at the end of June 2022, compared to 31 funds in the last quarter worth $1.5 billion. Richard S. Pzena’s Pzena Investment Management is the largest stakeholder of the company, with 16.5 million shares valued at $631 million.

 

1. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 153

Goldman Sachs’ Stake Value: $4,401,136,000

P/E Ratio as of November 10: 16.74

Alphabet Inc., the parent company of Google and Google subsidiaries, is one of the top Goldman Sachs value picks. Goldman Sachs owns more than 2 million Alphabet Inc. shares as of the second quarter of 2022, worth $4.40 billion and representing 0.99% of the total portfolio. 

On October 26, Oppenheimer analyst Jason Helfstein maintained an Outperform rating on Alphabet Inc. but trimmed the price target on the shares to $135 from $155 to reflect lower 2023 estimates on weaker first half of the year and slower headcount growth. 

Among the hedge funds tracked by Insider Monkey, 153 funds were bullish on Alphabet Inc. at the end of June 2022, compared to 160 funds in the last quarter. Chris Hohn’s TCI Fund Management held a significant stake in the company, with 2.5 million shares worth $5.4 billion. 

Here is what Mayar Capital has to say about Alphabet Inc. in its Q3 2022 investor letter:

“In early January this year – which admittedly feels like eons ago – US President Joe Biden was pushing Americans to take up the government’s offer of free COVID tests to help tackle the surging omicron variant. How did Biden respond when citizens asked about the availability of these tests?

“Google it!”

This advice, undoubtedly well-meant, was roundly scoffed at by the press, however. It seemed too obvious to be very helpful.

Anyway, the anecdote serves to introduce you to one of our largest holdings, Alphabet; the parent company of Google. Note that first, Alphabet’s original and core product – its search engine – has entered our common vocabulary as a verb. ‘Googling’ something has the same meaning as ‘researching’ or ‘finding an answer to’ something. Second the reason Biden’s advice was met with such opprobrium was because Googling something has become almost second nature to us now.

These two observations reveal a lot about Google’s strength in the search engine market, in which it has a share of over 90 percent. Because internet search is almost the prototypical network, Google has benefitted from – and we think is also protected by – the huge competitive advantage its scale brings – both to those asking the questions and those providing the answers. The Google search platform becomes increasingly useful to anyone seeking information as a greater volume of stuff becomes available. This starts a virtuous cycle that results in a colossal market share for Google itself. In the language of business strategists, Google benefits from vast network effects.

Because Google’s search results are viewed by billions of eyeballs every day, its search page ‘real estate’ is understandably very valuable to those with goods and services to sell. Advertising revenues from this ‘real estate’ as well as that from its other properties such as Mail, Maps, and so on, totaled almost USD 150b in 2021; amounting to almost 58% of the company’s revenues. Ad sales on YouTube, also owned by Alphabet, brought in another USD 28b. With the secular shift of the advertising spend to digital channels – over which Alphabet has a tight grip – we estimate the company has a share of around 40% of the digital advertising market and is probably the most valuable advertising property in the world…” (Click here to see the full text)

 

You can also take a look at 12 Best Kid-Friendly Stocks To Buy and 10 Stocks That Will Make You Rich. 

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This article is originally published at Insider Monkey.