Investment bank Goldman Sachs maintains its optimistic outlook regarding a U.S. recession despite unrest within its ranks. The third quarter of 2023 is currently underway, and the American economy has made significant progress since investors’ fears of doom and gloom last year. The economy sustained growth during the second quarter despite later downward growth revisions, and there is cautious hope that the Federal Reserve may decide against raising interest rates later this month. Inflation on the consumer front is declining at the same time that the labour market is cooling.
In a recent analyst note, the bank revised its estimate of the likelihood of an American recession over the coming year from 20% to 15%. However, while Bank of America’s change in outlook is recent, Goldman Sachs has been one of the more conservative banks in the sector when it comes to recession speculation throughout this year. The 15% probabilities are still greater than the “soft landing” that Bank of America anticipates.
A few weeks before the Federal Reserve decides whether to increase interest rate hikes or take another pause, the chief economist of Goldman Sachs, Jan Hatzius, released a note in which he predicted that there would be no rate hike in September and, if the data sets allow it, no rate hike in November as well.
The economist went on to say that there is little cause for concern over any lag from prior policy tightening because a significant improvement in discretionary income from the labour market is also anticipated for the coming year. Regarding the timing of interest rate reductions, Hatzius thinks that it won’t happen for at least two more quarters, with the first reductions anticipated to occur in the second quarter of 2024. The most recent comments follow a significant increase in the value of the U.S. dollar, which seems to have rebalanced demand for the greenback on international markets despite the Federal Reserve’s apparent hawkishness.
A quick glance inside Goldman Sachs reveals that the company is now working to return its attention to investment banking as the market’s outlook for the economy improves. The change comes after Goldman made the decision to focus on consumer banking, but losses in the industry have shaken public trust in the bank’s management. As the stock is down 5% year to date, it is one of the few giant banks whose shares have not performed well this year. The shares now trail their long-time rival Morgan Stanley (NYSE:MS), whose stock has been flat since the beginning of the year and has posted losses when compared to JPMorgan Chase & Co.
whose share price is up 8%. See Goldman Sachs Growth Stocks: Top 12 Stocks for additional information about the instability at Goldman Sachs. The top three picks were Tesla, Inc. (NASDAQ:TSLA), Zscaler, Inc. (NASDAQ:ZS), and CyberArk Software Ltd. (NASDAQ:CYBR), which were determined by rating some equities in the bank’s portfolio according to their forward price to earnings ratio. When it comes to forward P/E ratios, Goldman Sachs is currently at 8.67, while JPMorgan and Morgan Stanley are at 10.09 and 11.67, respectively. Wall Street appears to be wary of Goldman Sachs’ potential for development.
How about undervalued stocks, though? We’ve looked at a few undervalued stocks in Goldman Sachs’ investment portfolio today. An undervalued stock is one whose current share price is lower than what analysts estimate on average. American Tower Corporation (NYSE:AMT), InterDigital, Inc. (NASDAQ:IDCC), and SolarEdge Technologies, Inc. are the top three choices on the list.
We looked at the top 40 stocks in Goldman Sachs’ portfolio and ranked them according to the percentage gap between their current share prices and average share price targets to come up with our list of the bank’s undervalued equities. The top ten stocks out of these are as follows.
One of the biggest fast food merchants in the world is McDonald’s Corporation (NYSE:MCD). Its financial health is influenced by the overall health of the economy, with increased discretionary incomes being a positive factor for the company. As at the end of Q2 2023, Goldman Sachs owned 4.4 million shares of McDonald’s Corporation (NYSE:MCD) valued at $1.3 billion.
Out of the 910 hedge funds in Insider Monkey’s database, 68 made investments in the fast food company during the same time frame. Ken Griffin’s Citadel Investment Group is the largest shareholder in McDonald’s Corporation (NYSE:MCD), with 2.6 million shares valued at $777 million.
McDonald’s Corporation (NYSE:MCD) is a stock to buy according to Goldman Sachs, along with InterDigital, Inc. (NASDAQ:IDCC), American Tower Corporation (NYSE:AMT), and SolarEdge Technologies, Inc. (NASDAQ:SEDG).
One of the hottest stocks this year is Microsoft Corporation (NASDAQ:MSFT), which has increased 37% since the beginning of the year. The company has unbundled its video conferencing and productivity software packages as a preventative precaution because it is currently under investigation in Europe for possible antitrust violations.
Out of the 910 hedge funds questioned by Insider Monkey, 300 owned shares of Microsoft Corporation (NASDAQ:MSFT) as of the end of June 2023. Shares of Goldman Sachs are worth $13.2 billion, while Michael Larson’s Bill & Melinda Gates Foundation Trust is the company’s largest hedge fund shareholder with a $13.3 billion position.
The venerable American automaker Ford Motor Company (NYSE:F) is a household name. Similar to Hollywood, it is now experiencing worker strikes, and a union rejected Ford Motor Company’s (NYSE:F) most recent offer, calling it a “insult”.
Out of the 910 hedge funds that Insider Monkey analysed for their stock purchases in the second quarter of this year, 40 of them bought the company’s shares. Out of these, Ken Fisher’s Fisher Asset Management, with an investment of $918 million, is the largest stakeholder in Ford Motor Company (NYSE:F). On the other side, Goldman Sachs is the owner of 16.6 million shares, which are worth $1.8 billion.
The company UnitedHealth Group Incorporated (NYSE:UNH) offers medical insurance and benefits. Its shares are often classified as Strong Buys, but they haven’t performed well this year since they are down 8% so far. The stock is still generally classified as a Strong Buy, and Goldman Sachs increased its stake in Q2 2023 by 3% for a total investment of $2.3 billion.
UnitedHealth Group Incorporated (NYSE:UNH) had 111 hedge funds among the 910 hedge funds included in Insider Monkey’s study as of June 2023. The largest shareholder among them is Rajiv Jain’s GQG Partners, which has 4.8 million shares worth $2.3 billion.
The market leader in terms of share price growth is Meta Platforms, Inc. (NASDAQ:META), whose stock has increased 137% so far and outperformed its major peers. Similar to Microsoft, it is under investigation in the EU, and indications indicate that the company may launch paid platforms to give users a service without advertisements.
The company was owned by 225 of the 910 hedge funds that Insider Monkey surveyed for their share holdings as of Q2 2023. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the largest hedge fund shareholder in Meta Platforms, Inc. (NASDAQ:META), with a $3 billion investment, followed by Goldman Sachs with $2.8 billion worth of stock.