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Small-cap stocks have suffered so far this year, but Goldman Sachs believes hopes for a healthier economic environment make the group attractive, especially since it already trades at a fairly cheap valuation. I think it’s showing. The group bounced back in the fourth quarter and ended 2023 with a gain of more than 15% thanks to increased market participation, but the Russell 2000 is currently down 3.9% since the start of the year. In contrast, the S&P 500 is up 1.6% year-to-date. Small and medium-sized businesses have been hit by expectations that interest rates could remain high for longer than investors expected. Analyst Deep Mehta said, “Following the rise in the Russell 2000 in the second half of 2023, the outperformance of small-cap stocks versus large-cap stocks has stalled until 2024.” “improvement in growth rates and attractive relative valuations for small-cap stocks.” It should bring healthy profits in the future. Given the recent underperformance in small-cap stocks, Mr. Mehta selected stocks from Goldman’s small-cap coverage universe with at least 5% upside to price target, strong free cash flow generation, and valuation discounts. We’ve highlighted a number of stocks that are rated as Buys and are trading at . At least he’s 5% against past multiples. He said the companies on the list are also strong candidates for mergers and acquisitions, with Goldman’s forecasts at least 2 percentage points above or below consensus estimates for the fourth quarter and 2024. Opera, which makes mobile and desktop web browsers, is a company with the potential for significant operating profit growth, but it trades at a discount, according to Goldman. Analyst Eric Sheridan initiated the buy in December with a price target of $16.50. He said the company could see double-digit growth in the coming years as it continues to gain market share in digital advertising and achieve revenue growth by evolving its products powered by artificial intelligence. He said there is. Based on last week’s closing price, Goldman believes the stock could rise more than 50% over the next year. The stock has risen about 66% in the past 12 months, but is down about 17% since the beginning of the year. Shoals Technologies, a solar power equipment company, is also a popular Goldman small-cap stock. While the stock price has plummeted amid a huge sell-off in solar power stocks (the stock is down more than 52% in the past year), Goldman says the stock has a whopping 95% upside potential. Looking. In addition to trading at an attractive valuation, Goldman expects Shoals’ pre-interest and tax return to increase from 17% in 2023 to 30% by the end of 2026. Sholes has recently seen growing support among other analysts. Barclays last week upgraded the stock from underweight to equal weight, saying the company has a strong risk-reward profile and is on track to pay off its term loan by the end of 2026. One stock that offers strong free cash flow margins and yields, according to Goldman, is dating platform Bumble. Bumble’s free cash flow margin is expected to increase to 25% by the end of 2025, up from 23% last year. Goldman’s price target suggests the stock could rise 41%, but the company believes that a succession change and increased competition from other dating apps are hurting spending among Bumble’s user base. The company has struggled over the past year due to disappointing fourth-quarter sales forecasts. Wells Fargo analysts are also optimistic about Bumble, saying it has the potential to add about 500,000 paying users a year over the medium term, mainly at the expense of rival Tinder. The company initiated the stock on Dec. 7 with an overweight rating and a $19 price target, suggesting the stock could rise more than 38% from Wednesday’s closing price. Other small-cap stocks that Goldman likes include his coconut water company Vita Coco, food packaging company Sealed Air, and crowd-sourced review platform Yelp. —CNBC’s Michael Bloom contributed to this report.
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