🔋 Goldman's EV Picks

Happy Sunday to everyone on The Street.

Just over 30 years ago, a powerful Category 5 storm, named Hurricane Andrew, struck Florida, resulting in roughly $16 billion in damages — a sum that was unheard of at the time. Adjusting for inflation, this amount would equate to around $35 billion today.

However, the past three decades have seen many changes: construction costs have soared, Florida's population has surged, property values have skyrocketed, and the expenses associated with claims litigation have escalated. All of this is being passed along to you and me. We wrote about this in the latest version of The Last Cast Letter. The next edition will be published this Thursday. You can subscribe with 1-click here.

So, what if a Hurricane like Andrew hit Florida today? Well, it would be pretty horrible, to say the least. According to the Wall Street Journal:

Are we ready for a $200 billion catastrophe, the article asks? It’s tough to tell. The upcoming hurricane season is important for insurers, regardless of whether a major hurricane occurs or not. Somewhat counterintuitively, a couple of calm seasons could potentially lead to increased volatility in the industry if a sense of complacency emerges and pricing momentum declines.

There’s a saying in the underwriting industry, the Wall Street Journal notes: “There is no such thing as a bad risk; only a bad price.”

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_{Fees and expense ratios vary by holdings. Not all investors will have investments with high fees. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.}

Review

US stocks finished nearly 1% higher across the board Friday following Federal Reserve Chairman Jerome Powell’s Jackson Hole speech.

Powell warned that inflation is still above the central bank’s target of 2% and that additional interest rate increases are on the table. He noted the Fed will remain flexible as it contemplates further moves.

In company news, Alibaba launched two new artificial intelligence models that can understand images and carry out more complex conversations than the company's previous products. The models are built on the company's large language model released earlier this year. They are also open source, meaning researchers, academics, and companies worldwide can use them to create their own AI apps without needing to train their own systems, saving time and money.

Elsewhere, members of the United Auto Workers union overwhelmingly voted to authorize union leaders to strike during ongoing contract negotiations with General Motors, Ford, and Stellantis.

The union’s demands include a 46% wage increase, restoration of traditional pensions, cost-of-living increases, reducing the workweek to 32 hours from 40, and increasing retiree benefits. The UAW has more than $825 million in its strike fund, which it uses to pay eligible members on strike.

Finally, Maui County sued Hawaiian Electric for damages over the deadly wildfires, accusing the power company of leaving its power lines energized despite fire risk warnings.

The county said it will cost more than $5 billion to rebuild Lahaina, citing initial estimates from the Federal Emergency Management Agency.

In total for the week, the Dow Jones Industrial Average finished 0.5% lower, while the S&P 500 and Nasdaq Composite snapped their three-week losing streak, finishing 0.8% and 2.3% higher, respectively.

Preview

On Tuesday, investors will get an update on the home price index from June. The housing market metric increased 1.5% month-over-month in May, marking a fourth straight month of increases. Additionally, the Labor Department will release its monthly report on job openings. In June, the number of available jobs fell to 9.5 million, the lowest level since April 2021 but still well above the pre-pandemic level.

On Wednesday, the focus will be on US economic growth in the second quarter with a second estimate of the GDP growth rate. The advanced estimate showed the US economy expanded at an annualized rate of 2.4% between April and June, 0.4% higher than the previous period. Additionally, there will be an update to the 30-year fixed-rate mortgage, which currently sits at 7.31%, the highest level since 2000.

On Thursday, investors will get a look at July inflation via the personal consumption expenditures index, which is the Fed’s preferred measure of inflation. In June, the core PCE measure rose 4.1% year-over-year.

On Friday, the Labor Department will release the jobs report with its update to the unemployment rate, and investors will get a look at the manufacturing sector. Additionally, an August update for workers’ hourly earnings will be released, which rose 4.4% in July.

Earnings Spotlight

Best Buy (BBY), along with tech giant HP (HPQ) and semiconductor company Ambarella (AMBA) are kicking off this week’s notable earnings on Tuesday. On the whole, the retail sector has suffered recently. Investors will hope Best Buy can buck this trend.

Wednesday will be the busiest earnings day of the week, with reports coming from cybersecurity firm CrowdStrike (CRWD), discount retailer Five Below (FIVE), petcare ecommerce company Chewy (CHWY), and software giant Salesforce (CRM). Salesforce shareholders will be eager to learn about the company’s investment in the $4.5 billion AI startup Hugging Face.

On Thursday, Dollar General (DG), Lululemon (LULU), Dell (DELL), and chipmaker Broadcom (AVGO) will all hand in report cards. Investors will look to see if the wave of organized theft plaguing the retail sector has impacted Dollar General or Lululemon’s bottom lines.

Goldman’s EV Picks

The Haves and Have Nots

The electric vehicle market is undergoing a shakeup as competition increases and prices stabilize. Out of the upheaval, Goldman Sachs (GS) predicts two groups will emerge: those controlling manufacturing and those leveraging new technology to grow. The rest may face a crash due to intense competition.

So which EV companies will prevail in the impending shakeup? According to Goldman Sachs, those poised to outperform are Tesla (TSLA), Toyota Motor (TM), Panasonic Holdings (PCRFY), Toyota Industries (TYIDY) and Hon Hai Precision Industry (HNHPF).

Battery Boom

Take Hon Hai Precision Industry. The Taiwanese electronics manufacturer is benefiting as car companies outsource EV production. With a big footprint in EV design, semiconductors, and software, Goldman sees Hon Hai’s stock soaring in the next 12 months. Hon Hai is on Goldman’s conviction buy list.

Then there is Tesla, a pioneer in the EV market. Rating it neutral, Goldman says they value its battery production ramp-up and expanding supplier partnerships.

As for Toyota Motors, Goldman predicts that EVs could be the catalyst pushing the shares higher. With substantial cash reserves, Toyota Motors could easily adapt to industry and technology changes. Goldman rates it a buy.

Technological Advances

On the technological front, Goldman Sachs favors Panasonic’s cylindrical automotive batteries. Their capacity and safety features are expected to drive sales, according to Goldman — a compelling reason to buy the stock. Goldman is also optimistic about Toyota Industries' bipolar nickel-metal hydride battery for hybrid vehicles. The company is a major player in electric compressors and offers dividends, says Goldman.

The EV market is heating up and undergoing a shakeup. While the winners are yet to be determined, these are Goldman Sachs' companies to watch.

Neuberger’s Dividend Ideas

Find Income Outside of Bonds

High-yield bonds may be trending, but that doesn’t mean you should forget about dividend-paying stocks. With dividends, the payout grows over time. With Treasuries, you get one coupon for the duration, and that’s it.

“If you think about what a bond that’s yielding 4% can give you over a five-year period, if you can find a dividend stock that’s paying 3% and is growing their dividend at 10%, you’re going to end up ahead over a five-year period of time,” Neuberger Berman senior portfolio manager Sandy Pomeroy told CNBC.

It doesn’t hurt that dividend stocks are cheap at the moment. According to Pomeroy, they haven’t been this undervalued since the 1990s dot-com and tech boom. Back then, they ended up having a ten-year run as “outperformers," she said.

Industrials Poised to Boom?

The biggest opportunities are in industrials. The reason, according to Pomeroy, is the infrastructure boom, thanks to the passage of the Inflation Reduction Act. Billions of dollars have been budgeted to rebuild the nation’s infrastructure.

The players to watch here include Caterpillar (CAT), with a dividend yield of 1.9%, Deere (DE) at 1.3%, and Eaton (ETN), which has a yield of 1.6%. Industrials are the largest overweight sector in the Neuberger Berman Equity Income Fund relative to the market.

Paid to Wait

Pomeroy also sees opportunities in the financial industry. Dividend-paying stocks here are cheaper and likely to pay healthier yields. PNC Financial Services Group Inc (PNC) was named the top pick. With shares down 22% year-to-date and a dividend yield of 5%, Pomeroy describes the stock as "really cheap." Investors get paid while they wait for the upturn.

Dividend stocks aren’t trending but they should be. Stocks are cheap, and yields are expected to grow. Investors shouldn’t forget that they have income options beyond bonds.

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Magnifi, the AI that CNBC calls “ChatGPT meets Robinhood” is changing the way we invest.

• Do you know how much NVIDIA you own in all your various ETFs?

• Are you paying too much for your mutual funds?

• Do you have a realistic investing plan for your next big goal?

With Magnifi, you can access all this and more.

Magnifi is the AI assistant that helps you find, buy, and manage your investments — your co-pilot. Plan for goals. Find and buy investments. Conduct faster, better research. And analyze all your 401K’s and brokerage accounts at once, all with conversational AI.

For a limited time, you can get 50% off your first year of Magnifi.

_{Fees and expense ratios vary by holdings. Not all investors will have investments with high fees. Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.}

5 Stocks Investors Are Secretly Monitoring But Not Talking About Yet

On Our Radar

Many investors are on the hunt for undervalued, underfollowed, and emerging stocks, and retail traders have countless methods at their disposal to uncover new information. For some, this may be overwhelming.

Benzinga’s Stock Whisper Index uses a combination of proprietary data and pattern recognition to showcase five stocks each week that are just under the surface and warrant attention.

The index layers editorial commentary to help make sense of why these stocks should be of interest and whether investors and casual readers should watch them. Here is a look at the Benzinga Stock Whisper Index for the week of Aug. 25, 2023.

Microsoft Partnership Draws Attention

VCI Global: The business consultancy company saw shares soar this week after announcing a partnership with Microsoft Corp for use of the Azure OpenAI platform. The partnership will see VCI Global boost its artificial intelligence consulting efforts.

“This partnership will accelerate our growth in the AI industry, further strengthening our capabilities to transform the businesses of our clients,” VCI Global CEO Victor Hoo said.

Shares of VCI Global are up 44% in the last month. The stock was previously flagged by Benzinga as a short squeeze stock to watch, moving up 710 places on the Fintel short squeeze leaderboard in July. VCI Global currently ranks 16th on the leaderboard with 5.4% of the float short and a cost to borrow of 404.5%, one of the highest of all companies currently.

Energy Storage & OTC Medicine Spin-off

Electriq Power Holdings: The energy storage company saw shares up over 100% in Thursday’s trading session. The company recently completed a SPAC merger to go public. As a result of the merger, the company’s float has decreased, leading Electriq to be categorized by traders as a low float stock. Since going public, shares have been highly volatile.

Kenvue Inc: The owner of brands like Tylenol, Listerine, Johnson’s, Aveeno and Neutrogena was spun off from Johnson & Johnson earlier this year. As of this week, Kenvue is now a fully independent company and saw high interest from Johnson & Johnson shareholders who could exchange their JNJ shares for KVUE shares.

Following the transition to an independent company, Kenvue was named as a new component for the S&P 500 Index, effective Aug. 25.

Analysts have been out with mostly positive ratings since the spinoff occurred. Goldman Sachs upgraded shares to Buy earlier this week.

Keep Reading

Click here to keep reading about an exploration-stage lithium company that completed an IPO in the U.S. this past week and a commercial-stage biotechnology company that recently received a handful of analyst upgrades.

Last Week's Poll Results

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