Goldman Sachs sees at least a 40% gain in these 2 stocks – here’s why they could be rising

The story for most of 2022 has been one of rising inflation, but with 2023 about to enter the picture, the plot seems to be taking a turn for the better.

October’s inflation report came in much better than expected and surprised Wall Street. The good news, according to Goldman Sachs’ Chief Economist Jan Hatzius, is that the trend will continue next year.

“We expect a significant drop in inflation next year, with the core PCE measure set to fall from 5.1% currently to 2.9% in December 2023,” Hatzius said. “Our forecast reflects three key factors: 1) the easing of supply chain restrictions in the goods sector, 2) a spike in housing inflation after reopening, and 3) slower wage growth due to ongoing labor market rebalancing. ”

Despite recent gains, all major indices are still down this year, most notably the NASDAQ, which is still firmly in bear territory.

Meanwhile, Hatzius’ analyst colleagues at the banking giant have found two names poised to shoot higher in the coming months — by the order of 40% or more. We’ve run these tickers through the TipRanks database to see what other Wall Street analysts have to say about them. Here’s the low point.

Twilio Inc. (TWLO)

We start with Twilio, a leading CPaaS (communications platform as a service) company. Twilio offers a cloud communications platform that enables customer engagement through a suite of programmable communications tools. The platform allows developers to embed voice, messaging, video, and email capabilities into their apps. That Twilio is at the forefront of this secular trend is evident in its enviable customer list; it includes eBay, Shopify, Airbnb, IBM, Reddit, and Uber, among others.

Businesses are increasingly turning to digital channels, a trend that only accelerated during the pandemic. Twilio shares have been a big beneficiary and soared to dizzying heights, but the tables have turned against former high-flying but unprofitable growth names. Twilio has suffered greatly from the change of sentiment. Shares are 79% wiped out since the start of the year and recently took a beating following the company’s Q3 report.

In the quarter, revenue increased 32.8% year-over-year to $983 million, in line with Street’s expectations. The company supplied adj. EPS of -$0.27, beating analyst demand of -$0.35. So far so good, however, investors sent stocks down on disappointing prospects; the company sees fourth-quarter revenue in the range of $995 million to $1.005 billion, while the consensus was $1.07 billion.

While the stock has trended south for most of the year, Goldman Sach analyst Kash Rangan is still a fan.

Reviewing the print, the analyst said, “With a fundamental/valuation reset now in the back view, we believe Twilio can better deliver on its revenue/margin targets thanks to: 1) Best-in-class communications suite and a fast-growing software portfolio that remains under-penetrated relative to +$100B TAM opportunity, and 2) management’s pivot toward more disciplined growth should manifest in consistent margin growth closer to the top end of the 100-300 bps target range (leaner GTM organization, layoffs /recruitment delay, greater reliance on self-service channel).”

To that end, Rangan has a buy rating on Twilio stock backed by an $80 price target. Should the figure be met, the stock will change hands in 12 months at a premium of 48%. (To view Rangan’s track record, click here)

Overall, TWLO has a moderate buy rating by analyst consensus view, based on 15 buy, 8 hold, and 1 sell. The stock’s $84.04 average price target indicates room for about ~56% upside from the current share price of $53.88. (See Twilio stock forecast on TipRanks)

Bank of NT Butterfield & Son (NTB)

The next Goldman-backed name we’ll take a look at offers an entirely different value proposition. Headquartered in Bermuda, the Bank of NT Butterfield & Son offers a wide range of banking services, including corporate banking, retail banking and wealth management. Essentially, the bank acts as a holding company for an offshore banking company with 10 global locations, but with a focus on Bermuda and the Cayman Islands, where it is a market leader.

Sales and profit have been steadily increasing throughout the year. In its latest quarterly report, for Q3, revenue showed $141.1 million, up 13.2% from the same period a year ago, while also meeting Street’s expectations. Non-GAAP EPS of $1.16 beat the forecast to come in at $0.05 above the consensus estimate of $1.11.

This allowed the company to sustain a solid dividend. NTB declared its Q4 dividend at 44 cents per common share. At the current rate, the annualized dividend comes out to $1.76 and yields a yield of 5.37%. The return is almost three times the average in the broader markets.

All of this has made Will Nance of Goldman Sachs bullish on NTB. The analyst sees the stock as “a good opportunity to gain exposure to an extremely low-risk balance sheet with structurally higher returns compared to U.S. peers due to its tax-neutral jurisdictions and its 30%+ market shares in its core markets of Bermuda and Cayman .” The analyst added: “We believe this should provide attractive shareholder returns for income-oriented investors and protect the company from a slowdown in the wider economy.”

Accordingly, Nance rates NTB shares a buy, while his $46 price target leaves room for 12-month gains of ~40%. (To view Nance’s track record, click here)

Other analysts don’t beg to disagree. With 4 Buy ratings and no Holds or Sells, the word on the street is that NTB is a Strong Buy. The average target clocks in at $41.25, suggesting that the stock will gain ~26% higher over the course of a year. (See NTB stock forecast on TipRanks)

To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that unites all of TipRanks’ stock insights.

Disclaimer: The opinions expressed in this article are solely those of the recommended analyst. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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