- Investment bank’s late jump on Nvidia growth gravy train
- Cybersecurity and biotech options for high returns potential
- Unexciting business with appealing returns record
Each month, investment bank Goldman Sachs pulls together its analysts’ best stock investment ideas, which it calls its conviction list. It’s a bit like a stock pick cheat sheet for clients, where they’re given a rough outline of the thesis and potential without requiring readers to trawl through the deep dive research notes.
This month, four new names popped onto the list, three you may not have heard about, one you almost certainly have. First, the glaringly obvious – Nvidia (NVDA:NASDAQ). It might seem like Goldman Sachs is late to the party given that the world’s leading AI (artificial intelligence) chipmaker is up around 220% this year, smashing the alternative S&P 500, Nasdaq, FTSE 350 and Euronext 100 top performers.
Perhaps Goldman sees the stock’s relative pause over the past month (+1.3%) as a last chance to hop aboard this seemingly unstoppable train. The investment bank anticipates Nvidia to uphold its market-leading position, citing the chipmaker’s competitive edge and the growing complexity of customer-developed AI models as key factors.
Goldman analysts also note that supply constraints are beginning to ease and expects the robustness in Nvidia’s data centre business to persist.
AI superstar: Everything you need to know about investing in Nvidia
Casual readers can spin-through a more in-depth assessment of Nvidia and its investment potential in the above recent Shares feature, now we have removed our paywall restrictions.
WHAT ELSE HAS HIT GOLDMAN’S CONVICTION LIST
Goldman Sachs also added cybersecurity specialist Okta (OKTA:NASDAQ), industrial uniforms group Cintas (CTAS:NASDAQ) and Quanterix (QTRX:NASDAQ) to its conviction list.
Quanterix is not a pal of Asterix and Obelix in Roman-occupied Gaul, but a Massachusetts-based biotech involved in diagnosing neurological conditions like Alzheimer’s, and its leading blood-based testing approach is opening the potential for a much earlier diagnosis – something that has been a serious challenge with the disease.
Goldman points out that this is important right now because certain drugs have been shown to slow the development of Alzheimer’s significantly if started early enough.
Quanterix’s stock won’t be for everyone. With a market cap of $1 billion, the company is not huge and remains relatively unknown. It’s also been in a rapid growth phase, which means that while sales have been snowballing, so have costs, so don’t expect profits anytime soon – analysts predict ongoing losses for the next couple of quarters, while consensus sees red ink for full year 2023 and 2024 (to 31 Dec).
But the firm has plenty of cash to fund its growth - $339 million at the end of 2022, according to financial results - and the Alzheimer’s opportunity could be truly massive.
Okta provides identity solutions that allow employees to log in to any enterprise app on any device, a sort of one-stop shop for all your workplace apps. The company got carried away with the ambitious $6.5 billion acquisition of competitor Auth0, ending up making a bit of a dog’s dinner with it, but Goldman now thinks this is all in the rear-view mirror.
The investment bank reckons Okta is now on track for more higher growth, if maybe not quite what it was chalking-up a few years ago. Stockpedia data shows CAGR (compound average growth rate) of nearly 50% since 2018, versus a CAGR of 18% to 20% for this year (to Jan 2024) and next.
BRASS IN MUCK
Lastly, and bit less glamorous perhaps, Goldman Sachs believes Cintas’ organic growth has structurally reset higher than pre-Covid levels, driven by volumes and growing opportunities in delivering uniforms into the healthcare vertical.
The stock has a consensus price target of $592, indicating approximately 20% upside from current $493.26. Cintas was also upgraded by Bank of America in mid-September, which cited the company as a beneficiary of diminishing recessionary risks.
Cintas has above average return on capital employed (24.7%), return on equity (37.7%) and operating margins (20.7%), and this has translated into an average annual total return of 26.2%, according to Morningstar data, almost twice that of the Nasdaq Composite (14.6%).
