By Barbara Kollmeyer
It’s tight quarters in Wall Street’s bear sleuth these days.
Goldman Sachs just downgraded their 2022 U.S. growth forecast (to 2.4% from 2.6%) and 2023 (to 1.6% from 2.2%), as senior chairman Lloyd Blankfein warned of “very, very high” risks for a U.S. recession.
“If I were running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it,” he said over the weekend .
Also one of the most bullish banks on Wall Street headed into this year , Goldman cut its end-2022 S&P 500 target to 4,300. Their new baseline forecast assumes no recession, but if that happens, expect a drop to 3,600, they say.
“Although S&P 500 firms posted much better-than-expected 1Q EPS growth of 11%, investors have been mauled by a 18% near-bear market plunge since the index peaked on January 3rd,” said chief U.S. equity strategist David Kostin, in a note.
Their consolation prize and our call of the day is a list of 20 stocks with valuations below previous bear market lows.
Those companies also have size and liquidity — an above-average market cap is needed for uncertain times — and balance sheet strength, meaning they are typically less sensitive to an economic slowdown because they can withstand a fall in credit market liquidity, said Kostin and the team.
As for that attractive valuation, the metric is explained like this: the price/earnings multiple after a 20% haircut to expected 2023 earnings is below the forward p/e at the bottom of either or both of the March 2009 and March 2020 bear markets.
“Importantly, given the different real interest rate environments, the highlighted stocks are more attractively valued today on a yield gap basis relative to the rest of the index than they were in either 2009 or 2020,” said Kostin and the team.
And the stocks on this list, after a potential 20% reduction in 2023 EPS, would still have 2021-2023E compound annual growth earnings per share growth rate of 4% compared with -2% for the median S&P 500 company.
Read: ‘Nowhere to hide?’ What’s next as stocks slump toward bear market amid stagflation fears
It’s da svidanya to Russia for McDonald’s /zigman2/quotes/203508018/composite MCD +0.35% as the fast-food giant announced plans to exit from the country and sell its business there, which could cost it up to $1.4 billion. McDonald’s also wants to secure jobs for its 62,000 workers there.
Tesla’s /zigman2/quotes/203558040/composite TSLA +4.06% Elon Musk said Twitter’s legal team has accused him of breaking a nondisclosure agreement over bots , following his Friday announcement that a $44 billion deal for the social media group is on hold.
Stringent COVID lockdowns triggered slumping retail sales and industrial production in China , both data sets the weakest since March 2020, points out Deutsche Bank.
It’s a big week for retailer results, with Walmart /zigman2/quotes/207374728/composite WMT +0.60% (see preview ), Home Depot /zigman2/quotes/208081807/composite HD -1.24% and Target /zigman2/quotes/207799045/composite TGT -3.26% on tap. Take-Two Interatcive /zigman2/quotes/204008930/composite TTWO +0.68% will report results after Monday’s close.
The Empire State Manufacturing index showed surprising weakness in May . The week’s other big data will be Tuesday’s release of retail sales for April.