2 ‘Strong Market’ Stocks Goldman Sachs Predicts to Rise at least 40%

Not long ago, the key to market success was growth – but in today’s environment, with inflation running at a 40+ year high and the Federal Reserve aggressively raising interest rates in an effort to push toward back, growth stocks have beaten . Those stocks have shrunk 58% so far this year, according to data from investment bank Goldman Sachs, which defines high-growth companies as those forecasting 30% or better expected sales gains.

However, at least one Goldman analyst still sees a viable path for growth stock investors. Ryan Hammond, VP of US equity strategy, points out that growth stocks, in general, are cheap right now – but that they’re not yet bearish. He advises investors to avoid these cash-burning growth companies, writing: “Reward higher-quality growth stocks, but continue to avoid unprofitable growth stocks that would be required to enter the financial markets at a time when the cost of capital is rising.”

Some of Goldman’s equity professionals are taking that line of thinking – and tapping into the profitable growth stocks they see in strong positions for the year ahead. We used data platform TipRanks to look for two of these picks – both have Strong Buy ratings from Street analysts, and Goldman analysts give them more than 40% upside for each, even in today’s uncertain market conditions.

Credo Technology Group (CRDO)

The first Goldman pick we’re looking at is Credo Technology, an “incredible” company in the semiconductor chip world. Credo is a holding company and its subsidiaries design new semiconductor chips, produce prototypes and outsource production to larger chip foundries. This model allows Credo to focus its attention and energies on designing the highest quality products, including advanced technology line cards, DSP optical chips and active electrical cables, all vital components of wired network systems.

Credo went public earlier this year through an IPO that saw the company begin trading on NASDAQ on January 27. Shares opened at the bottom of their forecast range, just $10 each, and the company cut its offering from 25 million shares to 20 million – but the scaled-down IPO raised a total of $200 million, and the stock has gained 28% so far this year.

The stock’s solid performance comes after three public quarterly financial releases in a row showing profitability. EPS was reported at 3 cents for fiscal 3Q22, 2 cents for fiscal 4Q22 and 3 cents again for fiscal 1Q23. This latest quarter, 1Q23, for the quarter ended July 30, also posted revenue of $46.5 million, up 24% from the prior quarter and more than quadrupling the prior-year quarter’s high . The company ended the fiscal first quarter with more than $405 million in total assets, of which $243.7 million was in cash and cash equivalents.

Toshiya Hari, one of Goldman’s 5-star analysts, sees this company in a good position even in today’s highly volatile market environment. He writes, “Despite an increasingly uncertain macroeconomic backdrop and a more challenging cloud capitalization outlook, we continue to believe that Credo’s strategic role in enabling next-generation bandwidth needs in a cost-effective and energy-efficient envelope, as well as its unique design the company’s earnings will support a strong growth trajectory and, by extension, a healthy degree of operating leverage that is likely to be increasingly valued by investors as customer concentration dynamics naturally decline over time.”

Based on the above, Hari gives CRDO stock a Buy rating and a 12-month price target of $19 suggests a 48% upside. (To follow Harry’s history, Click here)

Although relatively new to the public markets, this stock has garnered 4 analyst reviews – and they are unanimously positive, supporting the consensus Strong Buy rating. Shares are selling for $12.82 and the average target price of $17.75 implies a one-year gain of ~38%. (See CRDO stock prediction on TipRanks)

Pure Storage (PSTG)

Another chip company is next – and as its name suggests, its focus is on computer memory. Pure Storage boasts a range of products that offer solutions to memory issues at all scales, from simple flash drives to the ‘FlashStack’ network and computing server. Pure Storage’s solid-state flash drives are used in applications from cloud computing to desktop virtualization to data center servers. The company has more than 10,000 customers worldwide and has a market capitalization of $8.5 billion.

Pure Storage recently announced its financial results for the 2nd quarter of fiscal year 2023 and it beat market expectations. For the quarter ended August 7 this year, Pure Storage posted a 30% year-over-year profit, with the top line reaching $646.8 million. The gains came from a 35% year-over-year increase in subscription services, which accounted for $232.2 million of total revenue. Subscription ARR, or annual recurring revenue, a key measure of forward performance, rose to $955.3 million, a 31% year-over-year gain.

In the bottom line, add. EPS came in at 32 cents. That earnings number was a solid 45% better than expectations of 22 cents and more than double the prior year’s result of 14 cents.

Good financial performance generated a lot of cash. Pure Storage reported total cash and liquid assets of $1.4 billion at the end of the quarter and operating cash flow in the fiscal second quarter of $159.4 million, of which $134.2 million was free cash flow. While that company doesn’t pay a dividend, it returned $61 million to shareholders during the quarter by repurchasing 2.4 million shares.

In his comments on Pure Storage, Goldman Sachs analyst Rod Hall applauds the company’s performance in a “tough environment” and sees the company’s quality product lineup as an invaluable asset.

“The company expressed confidence in the pipeline and its visibility for FH2. In terms of product trends, Pure noted that the recently launched FlashBlade//S product accounted for 20% of all FlashBlade orders in the quarter. We think this indicates significant traction for the new product right out of the gate with momentum that is likely to improve in our opinion,” Hall said.

“We see Pure’s commentary on the demand environment as consistent with our proprietary EAI/ESI indicators predicting a significant deterioration in the IT business spending outlook,” Hall added. “However, with the company’s technology advantage and product diversification, we believe Pure is better positioned to address the spending slowdown by gaining market share.”

To that end, Hall places a Buy rating on the stock, along with a $44 price target that suggests a potential ~52% upside for the stock over the next year. (To follow Hall’s history, Click here)

This company, like many tech companies, has garnered a fair amount of attention from Street analysts – in this case, 14 recent analyst reviews. These ratings are split 11 to 3 in favor of Buy over Hold, for a strong consensus Buy rating, and the average price target of $39.50 implies a ~37% gain from the current trading price of $28.84. (See PSTG Stock Prediction on TipRanks)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The views expressed in this article are solely those of the selected analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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