Companies with strong balance sheets are always going to find takers in the investor community. Widely viewed as a sign of financial stability, companies who stay lean when it comes to their debt load have the ability to ride through adverse economic cycles, irrespective of broader macroeconomic headwinds or sector-specific upheavals.
In fact, a basket of stocks with relatively strong balance sheets has been outperforming their peers with weaker balance sheets so far in 2024 - and Goldman Sachs (GS) analysts are highlighting a lineup of stocks included in that standout group.
Their key measure of balance sheet strength is the Altman Z-score, which is intended to reflect the likelihood of a company filing for bankruptcy within the next two years. It combines five key financial ratios to create a single score, offering insight into a company's liquidity, solvency, profitability, capital structure and efficiency. Companies with Z-scores below 1.8 face a high risk of bankruptcy, while those with scores higher than 3 are considered financially stable.
Based on Goldman's list of industry balance sheet leaders, here are five stocks that are top-rated on Wall Street, with room to rally to analysts' mean price targets.
#1: Nvidia
We start off this list with the unofficial “poster stock” of artificial intelligence (AI) globally, Nvidia (NVDA). The Santa Clara-based tech giant is designs and supplies graphics processing units (GPUs), application programming interfaces (APIs) for data science and high-performance computing as well as system-on-a-chip units (SoCs) for the mobile computing and automotive market. Its market cap stands at a whopping $2.26 trillion.
Offering a modest dividend yield of 0.02%, Nvidia stock has rallied 82% on a YTD basis. Thanks to its famously asset-light business model, Goldman Sachs has calculated an Altman Z-score of 61.4 for Nvidia, based on its balance sheet.
Overall, analysts have deemed NVDA stock a “Strong Buy,” with a mean target price of $955.78, which indicates an upside potential of about 5.7% from current levels. Out of 40 analysts covering the stock, 35 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 3 have a “Hold” rating.
#2: Monolithic Power
Founded in 1991 and headquartered in San Jose, Monolithic Power (MPWR) designs and manufactures integrated circuits (ICs) for power management applications. Their products are used in a wide range of electronic devices, including smartphones, laptops, data centers, and automotive systems. MPWR commands a market cap of $34.7 billion.
MPWR stock is up 13% on a YTD basis, and offers a dividend yield of 0.61%. With very little debt on the balance sheet, Goldman pegs the Altman Z-Score at 50.3 for the company.
Analysts have an overall rating of “Strong Buy” for MPWR stock, with a mean target price of $773.40, which indicates an upside potential of roughly 8.4% from current levels. Out of 12 analysts covering the stock, 9 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 1 has a “Hold” rating.
#3: Intuitive Surgical
Established in 1995, Intuitive Surgical (ISRG) is a pioneer and global leader in robotic-assisted, minimally invasive surgery. The company focuses on making surgery more effective, less invasive, and easier for surgeons, patients, and their families. Its market cap currently stands at $134.9 billion.
ISRG's share price is up 12.8% on a YTD basis. Thanks to its robust balance sheet, Goldman notes an Altman Z-score of 40.3 for the company.
Overall, analysts have a rating of “Moderate Buy” for the stock, with a mean target price of $419, which denotes an upside potential of about 10.2% from current levels. Out of 22 analysts covering the stock, 13 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 7 have a “Hold” rating.
#4: West Pharmaceutical Services
Founded in 1937, West Pharmaceutical Services (WST) is a leading manufacturer of high-performance containment and delivery systems for injectable drugs and biologics. Its products include vials and syringes, injection devices, controlled substance containment and closure systems, as well as rubber stoppers and plungers. The company currently commands a market cap of $26.7 billion.
WST stock is up 4.1% on a YTD basis, and offers a dividend yield of 0.22%. With assets dwarfing liabilities on the balance sheet, Goldman has an Altman Z-Score of 20.1 for the company.
Wall Street analysts have a consensus rating of “Strong Buy” for WST stock, with a mean target price of $412.29. This indicates an upside potential of about 12.4% from current levels. Out of 8 analysts covering the stock, 6 have a “Strong Buy” rating and 2 have a “Hold” rating.
#5. Arista Networks
Founded 20 years ago, Arista Networks (ANET) is a cloud networking company that designs, develops, and sells high-performance switches for data centers and enterprise environments. Their products are known for their scalability, performance, efficiency and lower total cost of ownership. Its market cap currently stands at $91.2 billion.
ANET stock is up 23.6% on a YTD basis, and its healthy balance sheet has garnered an Altman Z-score of 23.1, per Goldman.
Overall, analysts rate ANET stock a “Moderate Buy,” with a mean target price of $289.30 - which the stock has already surpassed. However, the Street-high target price of $356 indicates an upside potential of about 22% from current levels. Out of 23 analysts covering the stock, 15 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 5 have a “Hold” rating, and 1 has a “Strong Sell” rating.
