After a strong start to 2019 for U.S. stocks, some investors and market strategists anticipate further gains ahead. Meanwhile, Goldman Sachs has compiled a list of 40 stocks that their analysts believe are likely to post 12-month gains of 49% or more, far beyond what even the most bullish prognosticator expects for the S&P 500 Index (SPX) as a whole. Among these stocks are Citigroup Inc. (C), Northrop Grumman Corp.(NOC), NetApp Inc. (NTAP), Ford Motor Co. (F), Norwegian Cruise Line Holdings Ltd. (NCLH), Anadarko Petroleum Corp. (APC), Northern Trust Corp. (NTRS), and Twitter Inc. (TWTR).
8 Stocks That Can Crush the S&P 500
(Upside to Goldman Sachs Price Target)
- Anadarko, +63.1%
- NetApp, +57.5%
- Ford Motor, +56.9%
- Citigroup, +53.7%
- Norwegian Cruise Lines, +51.0%
- Northern Trust, +50.7%
- Northrop Grumman, +50.7%
- Twitter, +49.6%
Source: Goldman Sachs U.S. Quarterly Chartbook, pricing as of March 29, 2019.
Significance for Investors
In several cases, Goldman's optimism about the potential gains for the stocks listed above reflects EPS estimates that are significantly greater than the consensus for 2019. The figures below indicate how much Goldman's EPS estimates exceed the consensus.
- Northrop Grumman, +17.6%
- NetApp, +7.9%
- Northern Trust, +5.9%
Meanwhile, Citigroup, Norwegian Cruise Lines, and Northrup Grumman illustrate what can propel gains far beyond the market averages.
Citigroup, a leading nationwide U.S. bank with an extensive global footprint, has a Credit Suisse price target of $80, 23% above the April 3 close, and an outperform rating, per Barron's. Credit Suisse likes efficiency efforts aimed at keeping expenses flat and achieving a 13% return on tangible common equity by 2020. Meanwhile, Citigroup is also investing to spur organic growth.
The stock is up 25.8% year-to-date through April 3, on expectations that management will deliver improved results across a broad spectrum of Citi's business lines, according to another report in Barron's. Additionally, the bank is expected to return more than $20 billion of capital to shareholders, through a combination of share repurchases and dividends.
Northrop Grumman is a leading defense contractor, particularly in aerospace. The company has surpassed consensus EPS estimates in each of its last four quarters, beating the consensus by 10.8% in its most recent quarter, per Zacks Equity Research. However, the stock was still down by 26.1% from its 52-week high as of the April 3 close.
Northrop now uses mark-to-market accounting for pensions, which may produce wide profit swings, according to a third report in Barron's. Despite future earnings growth rates estimated to be in the mid-teens over the next few years, high pension liabilities are a source of concern. They equal about 50% of market value, versus about 8% for the S&P 500 as a whole.
Norwegian Cruise Lines beat 4Q 2018 earnings estimates and has issued earnings guidance for 1Q 2019 and the full year that is above the consensus, per another Barron's article. The company indicates that 2019 bookings are at an all-time high, at higher pricing, and that its high exposure to the North American market is a plus. The stock is cheap, with a forward P/E under 10, per Yahoo Finance, and Norwegian plans to spend $1 billion on share repurchases over three years.
For leisure stocks like Norwegian Cruise Lines, trends in personal income and consumer tastes are critical drivers. Government contractors like Northrop Grumman are dependent on a favorable political climate. For banks like Citigroup, the direction of interest rates and the broader economy, as well as regulation, are key drivers.