Goldman Sachs has this year added a number of stocks to its conviction list – buy-rated stocks it expects to outperform – giving them further share price upside. Rio Tinto Its latest addition was Australian miner Rio Tinto on March 3. It comes as Goldman Sachs turns bullish on commodities such as iron ore due to an expected recovery in China. The bank’s analysts said in the March 3 note that it recently raised its iron ore price forecast to $120 a tonne, from $100, on an expected recovery in Chinese steel volumes, among other factors. They also noted the recent ongoing recovery in property sales in China. “In general, real estate sales begin, driving higher demand for steel,” the analysts wrote. “Furthermore, this dynamic is playing out while iron ore inventories at Chinese steel mills are at their lowest levels since 2016, and mills have started to stockpile in recent weeks.” Goldman said it added Rio Tinto to its conviction list because of its “compelling” relative valuation to its peers, strong free cash flow, dividend yield and given the bank’s “bullish view” on iron ore, aluminum and copper prices. That gave Rio Tinto a price target of $140, or 10% upside from Friday’s close. Rio Tinto posted 2022 earnings last week that showed a 38% drop in annual profit, as iron ore prices weakened due to reduced demand from China and higher labor costs. But it said the outlook for China will brighten, with consumption in the country showing signs of recovery as it reopens. Sea Another stock that Goldman added to its belief list recently was Southeast Asian technology giant Sea. The bank raised its 12-month price target on the stock to $132, representing a 101% upside from the New York-listed stock’s Friday close. Goldman reiterated its buy rating on the company in a Feb. 16 note, saying it believes the stock will outperform profitability this year and show a return to growth. The company’s online shopping platform Shopee and gaming arm Garena are two of its main earning divisions. Goldman analysts said they see a “visible path to sustained share price recovery” as earnings will be positive, along with attractive valuations. In their bull case scenario, the banks see the company’s share price hitting $219 – giving it more than 240% potential upside. “Our bull-bear scenario analysis below suggests an attractive risk-reward outlook, with 242% potential upside if we were to assume valuation multiple recovery to where Sea’s segment used to trade on improving sentiment/outlook,” the bank said. Alibaba The above list of judgments comes after Goldman added Chinese tech giant Alibaba in January this year. The outlook for Alibaba has improved in 2023 as China reopens, and the stock is the best way to recover in the Chinese Internet sector, Goldman said. “We see further earnings upside and expect more room to run for China’s internet sector performance on China’s faster-than-expected reopening, macro recovery from 2Q and normalization of internet regulations,” the bank said in a Jan. 9 note. Goldman also raised its price target on Alibaba to $138, giving it over 50% potential upside from its US-listed stock’s Friday close. — CNBC’s Michael Bloom contributed to this report.
