Goldman likes these stocks as U.S. consumer begins to face headwinds

While challenges are mounting for consumers, Goldman Sachs still has some names that it sees as smart picks. Analyst Kate McShane said continued wage growth should support increases in disposable income. A key question is how much that translates into discretionary spending versus higher savings, especially among lower-earning Americans. That is important to monitor amid signs of weakness in the consumer, she said, pointing to rising credit card delinquencies, lower savings levels and a slide in consumer confidence as examples of reasons for this caution. The latest indicator of how shoppers are faring came Wednesday morning with the May consumer price index reading. The inflation gauge rose 3.3% on an annualized basis, still well above the Federal Reserve’s goal of 2%. In this environment, McShane said it is important to be “selective” in consumer-focused single-stock ideas. McShane has six specific names that she believes can be insulated due to qualities such as low-price leadership, idiosyncratic growth drivers and healthy revenue streams. Here are some of the names on her list: Walmart made the list. It has been a good year for the retailer’s stock, with shares rallying more than 27% in 2024. Wall Street sees more upside ahead, with the average analyst polled by LSEG having a buy rating and price target suggesting shares can climb 8.1% over the next year. JPMorgan’s Christopher Horvers joined the bull camp Monday, raising his rating to overweight from neutral. “We believe the stock adds a strong balance of defense and offense on both the top and bottom lines in a soft (to softening) consumer backdrop with a highly uncertain 2H24 ahead,” Horvers told clients. Royal Caribbean is one consumer discretionary stock that made the cut. It has been a similarly strong year for the cruise ship stock, with shares adding more than 20%. Similar to other cruise liners, Royal Caribbean has enjoyed booming demand amid the pivot to experiences coming out of the Covid-19 pandemic. The majority of analysts surveyed by LSEG also have a buy rating and price target suggesting the stock can gain another 6%. Consumer product maker Colgate-Palmolive also appeared on her list of stocks. Shares are up nearly 17% in 2024, though most of those gains were seen in the first three months of the year. The typical analyst also has a buy rating on Colgate-Palmolive, according to LSEG. Their price target reflects the potential for almost 5% in upside. Goldman is not the only firm that sees the stock as a wise idea given the current backdrop. On Wednesday, Jefferies listed Colgate-Palmolive as a consumer-facing stock that would feel the least exposure to shoppers trading down or switching to private labels.