As investors prepare their portfolios for the new year, Goldman Sachs revisited laggard stocks that have the potential to outperform at the start of 2023. In the past, stocks that lagged the broader market tended to become leaders in the first quarter of the following year, according to Goldman Sachs. The investment firm said this trend held up 13 out of last 20 years since 2002, and it has become “more pronounced” over the last two years. “In 1Q of 2022, laggards performance was solid for the second year in a row, outperforming the SPX by +5.6% (with a 66% ‘hit rate’) and was the 3rd best performance over the last two decades,” Deep Mehta wrote in a Thursday note. In the same way, this year’s biggest laggards could beat the market in 2023. The S & P 500 is down roughly 15% this year, but the underperformers are posting even steeper declines. They’re down roughly 34% on an absolute basis, with some of the steepest losses concentrated in technology and discretionary names. Goldman Sachs searched for laggards across several different criteria. These names have out of consensus buy ratings from the firm’s analysts, have upside relative to Street estimates, offer attractive top-line growth with strong earnings growth, have free cash flow or are top quintile “quality” stocks that are cheap. Here are 10 stock picks. Shares of Pinterest are a differentiated buying opportunity, as only 36% of analysts covering the stock have a buy rating, according to Goldman Sachs. While the image-sharing name may be down more than 30% in 2022, the firm’s analyst expects Pinterest will get a boost after improving user growth and monetization on its platform. “We upgrade the shares of Pinterest … on the back of improved user growth/engagement trends in the short/medium term and the potential for upside to revenue growth trajectory and operating margin estimates as we move into 2023/2024,” analyst Eric Sheridan wrote in an October note . Shares of Snowflake have “beat-and-raise” potential, as Goldman Sachs expects earnings beats and positive revisions could help the beleaguered cloud computing stock outperform at the start of 2023, according to the note. Snowflake is down more than 55% this year. Another stock that made the list includes Adobe , which Goldman Sachs considers a buy-rated quality stock trading at a reasonable valuation. Shares of Adobe are down about 40% this year. In October, Goldman Sachs analyst Kash Rangan identified the name as a tech stock that is resilient in a downturn . “We also highlight Adobe, who coming out of a potentially tough SMB spending environment and a weaker ad backdrop, can show top-line improvement,” Rangan wrote. Other names included in this list are Bumble , Expedia and Salesforce .
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