Some major tech names and drugmakers could have big comebacks in 2023, and options can help investors capture those rebounds, according to Goldman Sachs. Goldman’s derivatives research team, led by Vishal Vivek, looked at the potential upside for stocks in 2023 and found that the bank’s analysts expect a slight recovery next year. “Our single stock analysts’ price targets imply +11% upside over the next year for the weighted average of S & P 500 companies in our coverage, below the +28% implied ahead of October earnings,” Vivek wrote. But even if the overall outlook for stocks looks somewhat muted, Goldman does believe there will be some big individual winners. The firm calculated the single stock options with the most upside by comparing the price of an at-the-money call that expires in Jan. 2024 with the hypothetical return if the stock reaches the price target of Goldman’s analyst. There are several Big Tech stocks on the list, including Amazon and Salesforce . The shares of both companies have underperformed the broader market this year. Salesforce has dropped more than 18% in December after the company announced on Nov. 30 that co-CEO Bret Taylor would depart. Buying call options on those stocks carries potential upside of 312% and 535%, respectively, according to Goldman. Call options serve as bets that a stock price will rise above a set strike price during the life of the contract. If it does, investors can exercise the option to buy the stock at a discount and then sell it at a market price, collecting the spread as a profit. One benefit of using options is that, if the stock falls, the investors lose only the premium paid for the option. However, investing through call options does mean that investors miss out on any dividends paid by the underlying companies. The option play on the list with the most upside is Intellia Therapeutics , at more than 600%. The stock has fallen more than 60% this year, but Goldman said that biotech was one of the areas of the market with the most upside in 2023. “Our analysts cover 63% of the weight of the S & P Biotech ETF, and have a weighted average upside to price target of 40%,” the note said. One stock on the list that has performed well in 2022 is fertilizer company Mosaic , climbing nearly 20%. If it continues to climb to Goldman’s price target, the call option could deliver a return of nearly 300%, the firm said. The note also listed put options plays with high upside for investors. A put option is effectively the inverse of a call option and serves as a bet that a stock will fall below a set strike price. Two of the put options plays with the most upside are H & R Block and J.M. Smucker , at 241% and 138%, respectively. — CNBC’s Michael Bloom contributed to this story.
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