[Music] Goldman Sachs out with its conviction list with three key areas in Focus this fall artificial intelligence the state of the consumer and sustainability joining us in studio to break down the findings from the report we've got Steve Crome the director of America's equity research over at Goldman Sachs Steve it's great to have you on to discuss this so I know you guys call it the director's cut of Goldman stocks from your conviction list just give our audience the soat factor for this list 30 seconds or so first of all thanks for having me it's
great to be here uh so conviction list director cut is really meant to be a curated list of our top bated fundamental stock calls coming out of the research Department to take a step back for your viewers we have roughly 1,200 stocks under coverage in the Americas at any given time 5 to 600 of those stocks might be rated by so what we heard from investors is it would be great to have a list to help us uh distill down to what you think is most differentiated where your analysts have the highest level of conviction
what we look for is high conviction good risk adjusted returns uh and point of differentiation in the marketplace and the feedback has been fantastic since we introduced this list last June so Steve let's talk about some of the changes to this list as we were going through it there's a number of names that we want to get into but let's start with the fact that you guys added Pinterest to this list and then at the same time youve removed Amazon and you've removed guidewire walk us through that thesis and why there's so much optimism surrounding
Pinterest yeah so uh it's important to to think about we don't think of these as swaps or anything like that we we're keeping this list 20 to 25 names and the idea and the discipline around this list is to ensure that we're keeping the list Fresh So in the case of Pinterest Eric Sheran who's our analyst that covers Pinterest has very high conviction on their ability to monetize their user base and he speaks in his research about the various levers that they're going to pull and he's starting to see that Trend develop uh all the
while he sees a lot of margin expansion over the next 5 years he has two to 300 basis points baked into his projections of margin expansion per year in each of the next 5 years which leads his earnings to be 6% above the street in 2025 and when we think about fundamental bottomup research we're trying to project the E and where we can find the differentiation and uh all the while his on his risk uh return framework he has he sees three to one upside downside on on an name like Pinterest you asked about the
removal so I'll just briefly touch on it just um you know look we're trying to keep this list fresh and keep it disciplined Amazon is still a top pick for him it's one of his favorite names Eric shardan that is um it had been on the list since our Inception back in June of last year so as part of the discipline uh to uh continue to keep things fresh for our for our investor base we decided to remove that and guidewire both Amazon and guidewire have been uh fantastic stocks so it's not necessarily that he's
changed his View at all just in terms of the degree of bullishness but really it's just a rejiggering as to a name that maybe better fits into to your vision go Vision here of the correct and and I should say unlike many other lists that you see out in the marketplace these uh ideas on this list are sourced from the fundamental work the good fundamental work that our analysts do and the names are selected by a subcommittee of our internal investment Review Committee we spent a lot of time on investment process and spent a lot
of time with our analysts talking about uh stock recommendations and so these are sourced from them but yes uh their views have not changed they're bated it makes me think about too I was able to speak with Toshi Yari who is the analyst behind Nvidia about his call on the stock obviously a buy rating you call it the shovel of the AI Gold Rush uh and he said the selloff that we saw in Nvidia following their earnings was completely overdone what is the bull case for NVIDIA now especially as we are getting closer to their
next quarterly earnings sure and um we we just had you know Jensen speaking at our communic copia conference a couple of weeks back look nvidia's been on this list for about a year now um and you may say you said differentiated ideas how could you be differentiated on Nvidia it would be a natural question for the better part of the past year tashia's earnings estimates have been 20% above the street and all you've seen is upward revision so there's differentiation in that without even the need for multiple expansion and I think uh and we think
as uh the AI infrastructure development continues to play out uh nvidia's right in The Sweet Spot of that so uh he's still about six 7% above the street on earnings and we we expect uh revisions to be higher not having Nvidia on a list like this I think would be a bit of a surprise for investors just given the massive mood and growth and and everything that we're expecting to see going forward see let's switch gears here because we're short for time and I I want to talk financials and and one of the names within
the financials that you guys like that's on this list is City Group we're about to hear from the bank here in just a few days as we kick off third quarter earnings season what is it about City that Goldman views as the differentiating factor especially when you compare to some of those other larger big Banks yeah so the analyst there Richard Ramden has been out with a call where he thinks that city is able to drive Topline all the while with cost uh control measures that they have in place to drive margin expansion uh better
than others that he covers which is important in that it's leading to a uh return on tangible Equity north of 10% I think he's at 10.2% which is driving the cash flow that he thinks they could start returning to shareholders in a bigger way is that indicative of Jane Fraser's kind of defensive work on the balance sheet since she started doing a lot of cost cutting in particular with regards to labor at the company yeah I I'll leave uh that to Richard but yes it would seem as though the way he's modeling this out is
a combination of both the ability to drive Topline while also uh controlling costs Steve how much when you take a step back from this list and MD started the conversation talking about some of the themes with with sustainability the a Ai and the consumer what do you think that tells us just about where we are in the economic cycle and factoring in the equity side of things just where we really see that growth here going forward as we talk about that next leg higher so uh I heard you guys reference earlier uh you know Chief
Economist Yan Haus um you know lowering his recession probability to 15% he's been above consensus for GDP growth in the US in particular um and been right with that call and also our portfolio strategists on Friday rais their earnings expectations from a top- down standpoint to 11% growth next year um you know we're about sort of the bottoms up and you mention themes we don't manage this list top down themes but what's interesting is the discovery that you get when talking to analysts because the themes certainly play a role in their fundamental Bottoms Up stock
picking and I think what it's telling us right now uh interesting to one of your prior guests is that there is a broadening out of the market that's the expectation that that we have and uh organically we have a lot more midcap names on on this list than we had six months ago roughly half our list you can say is in that midcap sweet spot so I think that that is a certainly a theme in the marketplace you mentioned the consumer uh we as a house both our macro team and our uh Bottoms Up research
fundamental analysts have been above consensus on their expectation from consumer spending uh and they expect that to continue going forward
