Goldman's Picks for Earnings: RCL, NDAQ, AVGO with Big Upsides

Key Takeaway

• Goldman Sachs highlights tactical stock picks with potential for significant earnings surprises, including RCL, NDAQ, and AVGO.
• Analysts predict strong earnings growth for S&P 500 companies, marking the third consecutive quarter of growth.
• Options market anticipates notable price movements post-earnings for highlighted stocks, suggesting investor focus on idiosyncratic opportunities.

Earnings Season Kickoff

The earnings season is set to begin this week, with major banks like JPMorgan Chase, Citigroup, and Wells Fargo reporting their first-quarter results before the bell on Friday. These reports are highly anticipated as they could set the tone for the overall earnings period. Analysts, according to FactSet data, are expecting the S&P 500 to have grown 3.2% from the year-earlier period, marking the third consecutive quarter of earnings growth. Goldman Sachs highlights this period as ripe for tactical opportunities in the stock market, noting that S&P 500 stocks have shown less correlation over the past six months than at any time over the past five years, suggesting a fertile ground for investors focusing on idiosyncratic opportunities.

Goldman's Picks and Predictions

Goldman Sachs has identified several stocks where its analysts are more optimistic about earnings per share compared to the Street consensus. These stocks are expected to see sharp movements post-earnings, as indicated by the options market. Names like Royal Caribbean Cruises, Nasdaq Inc, Broadcom Inc, and others have been highlighted for their potential upside. For instance, Royal Caribbean is seen having a 24% upside due to factors like growing travel demand and strong pricing power. Similarly, Nasdaq is expected to see a 16% upside from its growth in the fintech space, and Broadcom is anticipated to have a 17% upside due to its sustainable leadership position in durable markets.

Microeconomic Setups Driving Performance

Goldman Sachs has pointed out that the stock market's performance has been more influenced by company-specific factors rather than the macroeconomic environment. Using a "dispersion score," Goldman has identified stocks with the most attractive microeconomic setups for forward-looking stock-picking opportunities. Consumer discretionary and technology sectors are seen as having the best opportunities based on their dispersion scores. Stocks like Monster Beverage, DexCom, and Akamai Technologies are among those with the highest dispersion scores, indicating significant alpha opportunities.

European Conviction List and Trading Strategy

Goldman Sachs has also updated its conviction list for top global stocks, with a specific focus on Europe. Despite the Stoxx 600 index's lackluster performance last week, it is up 6.55% year-to-date. Given the uncertainty over how much further markets can rise, Goldman recommends a "barbell approach" to trading European equities. This involves being overweight on defensive growth companies with strong balance sheets, cash-generative mature companies, and smaller cap companies with lower valuations. New additions to Goldman's European conviction list include Unibail-Rodamco-Westfield and JCDecaux, with bullish outlooks based on factors like consumer trends and major sporting events.

Street Views

• John Marshall, Goldman Sachs (Neutral on S&P 500 stocks):

  "S&P 500 stocks have been less correlated over the past 6 months than any time over the past 5 years, providing an excellent backdrop for investors that focus on idiosyncratic opportunities. The ratio of Index to Single stock options prices suggests idiosyncratic opportunities will continue over the next 6 months."

• Lizzie Dove, Goldman Sachs (Bullish on Royal Caribbean Cruises):

  "The company will be the first to re-launch in China, the highest yielding market for RCL back in 2019 (~$100mn of net income) and sees ~60% premium pricing for the company’s upcoming Asia voyages vs. other similar peer itineraries."

• Goldman Sachs Analyst for Nasdaq Inc (Bullish on Nasdaq Inc):

  "Nasdaq earnings have the potential to accelerate to around 12% in 2025 and 2026... due to factors such as robust growth in the firm’s index business, faster-than-expected deleveraging and better integration and offerings of Nasdaq’s risk management software platform, Adenza."

• Toshiya Hari, Goldman Sachs (Bullish on Broadcom):

  "Broadcom’s strategy to participate in markets that are durable and in which they either have or can construct a sustainable leadership position has worked well over the years... Broadcom also possesses an extensive technology portfolio, while its leadership in the custom artificial intelligence acceleration space could provide attractive upcoming growth opportunities."