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It’s almost a party trick: Pick a single top stock from each of the 11 sectors in the S&P 500. Analysts who make millions a year specialize in just one sector, and even CNBC’s market maven Jim Cramer struggles to be anywhere close to perfect when trying to keep straight stocks in all parts of the giant U.S. economy.
The picks below are mostly plucked from one of two sources: Goldman Sachs’ “Conviction List,” made up of stocks the firm calls its “most differentiated” analyst recommendations, many of them contrarian, and from a list compiled by CFRA Research stock strategist Sam Stovall, who surveyed the firm’s analysts. Both Goldman’s and CFRA’s lists were compiled with a 12-month horizon in mind.
If the picks have common themes, they are “bouncing back” and “climate change.” Several will rise or fall on efforts to promote renewable energy, building efficiency and electric vehicles. Others seek to exploit the recovery from the COVID-19 pandemic, or avoid the negative parts of the post-pandemic economy like high office building vacancies and higher interest rates. And one says it’s been an unwitting recent beneficiary of America’s culture wars. Here are 11 stock picks for each of the 11 stock market sectors:
| Stock | Sector | Year-to-date gain (as of Aug. 24 close) |
| Salesforce Inc. (ticker: CRM) | Information technology | 55% |
| HCA Healthcare Inc. (HCA) | Health care | 14.1% |
| American Express Co. (AXP) | Financials | 7.9% |
| Molson Coors Beverage Co. (TAP) | Consumer staples | 23.2% |
| Uber Technologies Inc. (UBER) | Consumer discretionary | 80.7% |
| Warner Bros. Discovery Inc. (WBD) | Communication services | 34% |
| Johnson Controls International PLC (JCI) | Industrials | -7.7% |
| First Solar Inc. (FSLR) | Energy | 16.4% |
| Albemarle Corp. (ALB) | Materials | -12.1% |
| Targa Resources Corp. (TRGP) | Utilities | 16.4% |
| Prologis Inc. (PLD) | Real estate | 9.6% |
Sector: Information technology
After a brutal 2022, tech is working again this year, with the Nasdaq 100 rising around 35% to the Nasdaq Composite’s nearly 30%, showing how blue-chip titans dominate right now. Speaking of titans, Stovall’s pick was Microsoft Corp. (MSFT), one of the purest ways to ride the cloud computing trend, and it’s up 34.3% this year. Nothing wrong with that, especially with cloud revenue expected to double by 2027. But Goldman’s top tech pick was Salesforce, where the firm’s above-consensus $325 target price represents 58% upside despite a 55% year-to-date climb.
Salesforce cut costs hard during the downturn, laying off 7,000 people as recently as January, and the reward now is a “growth reacceleration story with a pathway to outsized free cash flow,” Goldman argues. Wedbush analyst Dan Ives says Salesforce is pushing fast to integrate artificial intelligence technology into its cloud-based enterprise software services, setting the stage for that growth.
The most aggressive forecasts have Salesforce boosting profits by 51% this year and 35% next, reaching $10.28 a share in fiscal 2025, which begins Jan. 31, 2024.
HCA Healthcare Inc. (HCA)
Goldman put several health care stocks on its list, including drugmakers Merck and Vertex, and Stovall tabbed Covid vaccine maker Moderna Inc. (MRNA), whose RNA technology is being put to work in developing other drugs. However, Goldman’s non-pharma pick, HCA, offers a mix of lower risk than drug development and a shot at closing what Goldman says is a 14% valuation gap.
Goldman’s logic is that people are resuming discretionary tests and procedures they deferred during the pandemic at HCA’s hospitals and outpatient centers – a point dented by second-quarter earnings reports from insurance companies, Goldman concedes. Goldman research director Steven Kron noted that his colleague, analyst Jamie Perse, “still likes the stock here and actually raised his numbers as he sees a sustained increase in hospital utilization fueling renewed gains for the shares.”
Since HCA stock dropped in July, giving back a June gain, nothing is certain, but hospital services are less volatile than pharma. With 77% of Wall Street agreeing with Goldman’s “buy” call, according to TipRanks, the risk-reward seems to be mostly agreed upon.
American Express Co. (AXP)
Stovall’s pick is slightly contrarian, since other credit card plays like Visa Inc. (V) and Mastercard Inc. (MA) have beaten Amex in stock performance lately. But CFRA argues that American Express has the best credit quality of its peers, which it thinks will make a difference in a slowing economy.
“AXP came into the pandemic with industry-leading credit quality given its wealthy customer base, which is less prone to defaults than peers,” analyst Alexander Yokum wrote. “We have been encouraged by further credit improvements. The same can’t be said for the whole industry, as most companies have hit pre-pandemic credit quality or even deteriorated past it.”
Yokum thinks Amex can move to $235 a share from around $160 within a year. The risks are if delinquencies rise or if lower consumer spending reduces the transaction fees Amex takes on sales where its cards are used, he said.
Molson Coors Beverage Co. (TAP)
Stovall’s pick in this sector is up 23% this year, while rival Anheuser-Busch InBev SA (BUD) is down about 6%. Molson Coors boosted sales 9% in the first half while doubling profits. The company chalked up the gains to a series of moves it has made since 2019 to streamline its supply chain and reinvest in brands like Coors Light and Miller Lite. And it got a little help from the boycotts that followed Bud Light’s short-lived marketing partnership with TikTok influencer Dylan Mulvaney. In a year, Coors Light and Miller Lite took a 50% combined market share edge over Bud Light, which had been bigger than both of them put together, Molson Coors said.
“We didn’t plan on our largest competitor’s largest brand declining volume by nearly 30%,” CEO Gavin Hattersley said on the company’s second-quarter call.
Uber Technologies Inc. (UBER)
Sector: Consumer discretionary
Big Tech companies often show up in other categories than the IT section of major indexes. Netflix Inc. (NFLX) is in the S&P 500 Communication Services Index, for example.
Another consumer company investors might think of as a tech stock is ridesharing leader Uber, which only recently turned profitable but has seen its cash flow inflect higher over the last year. Its free cash flow could reach $5 billion next year, CFRA’s Angelo Zino said. And there are even turning points in sight for autonomous car technology that could make Uber far more profitable down the road, he added.
All 31 analysts who follow Uber recommend it, according to TipRanks. Evercore ISI internet analyst Mark Mahaney calls Uber his No. 1 pick, ahead of Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG, GOOGL), saying the company’s drastic cost cuts early in the pandemic set up record free cash flow results for the last four quarters.
“Uber has one of the strongest top-line growth outlooks among the companies we cover and faces a series of potential value catalysts,” Mahaney wrote. Those catalysts are: attaining and sustaining profitability; the initiation of capital returns, possibly in the second half of this year; and S&P 500 inclusion, possibly as early as the fourth quarter.
Warner Bros. Discovery Inc. (WBD)
Sector: Communication services
Like many of Goldman’s picks, Warner Bros. can seem counterintuitive, since it’s facing challenges ranging from the Hollywood writers’ strike to what to do about its struggling CNN news network, and is losing the streaming wars to Netflix Inc. (NFLX). It also sold off after its earnings report in early August. But Goldman’s $20 target price is almost 60% above Warner’s current stock price – the biggest discount on the bank’s 22-stock conviction list.
Warner actually beat earnings estimates, Goldman analyst Brett Feldman said, while its Max streaming service made a small profit before interest, taxes and non-cash charges for the second quarter in a row. The company used its improving cash flow to pay down debt from the 2022 merger that created it, he said, setting the company up for better results to come.
Johnson Controls International PLC (JCI)
Johnson was the one pick both Stovall and Goldman made. Like others on this list, it’s a climate change play, since many of the Milwaukee-based (and Ireland-domiciled) company’s products can be used in retrofitting buildings to be more energy-efficient, CFRA’s Emily Nasseff Mitsch said.
“Our Strong Buy rating reflects the healthy short- and long-term sales growth trajectory we see, supported by secular growth in smart and clean buildings, and our valuation, with shares being undervalued by about 27%,” wrote Mitsch, who said the stock, which is down this year, has generated a 75% return since 2018 with dividends. “We expect investments in building energy efficiency will pick up in the medium term, spurred by cost savings from more efficient equipment and new government tax incentives.”
Goldman’s Joe Ritchie says this and spending driven by federal aid for school construction will help Johnson generate earnings growth in the mid-teens. The key risk is if there is a commercial construction downturn, he said.
Goldman also likes oil giant Chevron Corp. (CVX), but it says this maker of solar panels is trading at a nearly 40% discount to Goldman’s target price of $292 a share. “A dominant franchise in an industry benefiting from the Inflation Reduction Act,” Goldman called it.
“Our Industrials teams have sensitized the IRA impact across our global coverage and identify many stocks that have the potential for more than 50% incremental earnings directly tied to the tailwind created by the IRA,” Kron said. “The benefits for some can come as soon as next year, while the team sees others showing impact in the out-years.”
First Solar has announced two new U.S. factories since the passage of the law, which includes tax incentives for power developers to add solar capacity. The U.S. Department of Energy expects that half of new electricity capacity added this year will be solar, accelerating a decades-long expansion of the technology’s role.
Just as the film “The Graduate” is remembered for its one word of 1960s career advice – “plastics” – so Albemarle will rise or fall on the single word “lithium.”
Stovall’s pick is a bet on the production of an element essential to lithium-ion batteries, the power source behind electric vehicle and cellphone batteries. With federal money on tap from the Inflation Reduction Act, and electric vehicles projected to take a third of the U.S. market by 2030, the nation’s biggest lithium producer will grow. “As we look ahead a few years, a fundamental choke point in the advancement of electric vehicles is the availability of battery-grade lithium,” no less an authority on EVs than Tesla CEO Elon Musk said.
Investors have to be prepared for returns to be lumpy, though. Albemarle is down more than 33% in the last 12 months, but up more than 95% over the past five years. With a price-to-earnings ratio of 5.7 and obvious growth drivers on the horizon, it’s a plausible bet, if not risk-free, on American electrification.
“Our Strong Buy rating is driven by our strong sales growth outlook; our positive view on long-term demand for lithium, specifically with EVs; and our view that shares are very undervalued,” CFRA’s Mitsch said.
Targa Resources Corp. (TRGP)
Utilities fall out of favor when interest rates rise, because income from their relatively high, but not stratospheric, dividends becomes easier to match in the bond market. And that has happened this year, with Goldman’s top pick, Southern Co. (SO), down around 4.5% year to date and Stovall’s choice, New Orleans-based Entergy Corp. (ETR), down around 15%.
An alternative approach could be thinking of Stovall’s energy pick as a utility-related stock. Targa is a natural gas pipeline company, and most natural gas in the U.S. is sold to utilities, to produce either heat or electricity, with the rest going for industrial uses. Like utilities, pipeline companies are prized for their relative stability and Targa’s 2.4% dividend yield is respectable, if lower than the 4%-plus the other two utilities pay. And U.S. natural gas production is nearly 10% higher than pre-pandemic levels.
Targa is growing earnings, which has helped boost its stock by 16% this year, while the S&P Energy Index has stalled and S&P’s Utilities Index is down 10.5%. All 12 analysts who follow Targa rate it a “buy” and on average expect it to rise 22%, according to TipRanks. The mean forecast is for 2022 earnings per share of $3.82 to reach $6.26 by next year.
Stovall avoided this year’s debate over the office sector – buffeted by the persistence of work-from-home that has sent vacancy rates skyrocketing – by picking a real estate investment trust, or REIT, that focuses on warehouses. Since warehouses are about moving physical goods, they’re full of both workers and products – vacancy rates are only 4.1%, according to Cushman & Wakefield, compared to 19.2% in office buildings.
Better yet, Prologis’ client base tilts toward e-commerce, which is still taking market share from store retail. Prologis’ vacancy rate checks in at a barely-there 2.5%, and it reported the biggest rent increases in company history in the second quarter. Twelve of the 14 analysts who follow Prologis recommend buying shares, with two calling it a “hold.” The problem is that Prologis’ virtues are well understood enough that the shares are already fairly expensive after a nearly 10% year-to-date climb, and higher interest rates make its 2.9% yield less compelling.
But if commercial real estate is a storm these days, warehouses are about the safest port to dock. Prologis has big ones, and they are full, CFRA real estate analyst Michael Elliott said.
“We see strong demand for Prologis’ logistics centers in key locations, with high barriers to entry given difficult-to-obtain zoning entitlements,” he wrote. “We believe [its] current land bank, with estimated value creation potential of $35 billion, is a key differentiator in markets where land remains scarce.”
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