Goldman Sachs Conviction List at Three Years: Four New Additions, Overall Positive Outlook on U.S. Equities

Overview

This is the June 2026 update of Goldman Sachs' 'U.S. Conviction List – Directors’ Cut,' marking the third anniversary of the list’s launch. The list selects 20–25 top-conviction, highly differentiated buy ideas from Goldman’s U.S. equity coverage universe. This update adds Casella Waste (CWST), TPG (TPG), Tyson Foods (TSN), and Block (XYZ) while removing Ares Management (ARES), Kontoor Brands (KTB), and Wynn Resorts (WYNN)—though the removed stocks remain rated Buy. Beyond membership changes, the report reviews three years of stock selection performance and lessons learned, outlines the year’s most critical market themes, and provides investment theses for each stock on the list. Overall, Goldman maintains a constructive view on U.S. equities, expecting further gains.

Core views

List Purpose and This Update: The Conviction List is not a portfolio but a curated set of 'best buy ideas' selected monthly by a subcommittee under the Investment Review Committee from across sector analysts. Stocks must demonstrate high conviction, differentiated views, visible catalysts, and strong risk-adjusted returns. This update adds four names and removes three, keeping the list within the 20–25 range. Performance Review: Since the last annual report, the S&P 500 has risen 29%. Over the past 12 months, the list’s hit rate (percentage of stocks outperforming the benchmark) was around 50% across measures, outperforming an equal-weighted S&P by ~760 bps but underperforming the market-cap-weighted S&P by ~180 bps—mainly due to underweight positions in the few tech sectors driving broad market gains. As an equal-weighted portfolio, the list returned +28% over the past year and +87% cumulatively since June 2023. The report also finds that about 78% of newly added stocks beat earnings expectations in their first post-inclusion quarter, and such stocks on average outperformed the S&P by 215 bps in the six days surrounding earnings. Market Outlook: 'Confidence comes from skepticism'—since ChatGPT’s debut, the S&P 500 has gained 84%, with nearly two-thirds of that driven by real earnings growth, not multiple expansion. Goldman raises its year-end 2026 S&P 500 target to 8,000 points, emphasizing this forecast does not require further multiple expansion but relies on achieving the expected 24% EPS growth (2026 EPS estimate ~$340, 52% higher than forward estimates before ChatGPT). The firm argues that skepticism about AI’s ability to create value beyond the AI ecosystem itself has paradoxically become a support for the rally’s continuation. Five Key Themes: Reduced from ten to five themes for 2026—① AI and Power (AVGO, CLS, DUK, NVT directly benefit; U.S. power demand CAGR revised up 60 bps to 3.2%); ② Productivity and Margin Expansion (CFG, LOAR, JNJ, UNH, XYZ improve profits via efficiency, not just revenue growth); ③ Inflation and Interest Rates (gasoline prices up >50% YTD, April CPI at 3.8%, 10-year yield at 4.48%; beneficiaries include COP, GLNG, DUK, and financials CFG, IBKR, XYZ); ④ Consumer Resilience (DKS, TSN, BRX, DASH, XYZ); ⑤ Geopolitical Uncertainty and Remilitarization (COP, GLNG, APD). New Additions Rationale: CWST benefits from waste pricing algorithms enabling mid-single-digit organic EBITDA growth, cost savings, and M&A synergies; 100% of revenue from recycling/waste minimizes commodity exposure (10% commodity swing impacts EBITDA <0.2%), with 70–75% contracts repriceable immediately, allowing sustained inflation-plus pricing (~150 bps above); target $120. TPG’s stock down ~40% YTD, but base management fees expected to grow ~20% in 2026/2027, fee-related margins expanding 300 bps this year, trading at a discount; target $61. TSN, the largest U.S. protein processor, benefits from strong chicken demand and operational improvements; FY26/FY27 EPS forecasts of $4.13/$4.67, 2–3% above consensus; target $81. Block (XYZ) leverages Square acceleration, Cash App evolution, and 40% headcount reduction plus AI-driven efficiency, forecasting 64%/36% EPS growth in 2026/2027; target $95. Removed Names: ARES, KTB, and WYNN are removed this period, with ARES and WYNN having missed earnings expectations for two consecutive quarters. The report stresses removal does not imply a rating downgrade—all three remain Buy-rated.

Analysis framework

Selection Process: The list is managed by a subcommittee under the Investment Review Committee, selecting the most compelling, differentiated buy ideas with clear catalyst paths from sector analysts. It intentionally creates competition among analysts for 'capital allocation' and strictly limits the list to 20–25 names. The firm explicitly avoids expressing thematic or factor-based views at the list level, relying instead on bottom-up fundamental research. Performance Attribution: Two methods assess selection effectiveness. First, 'hit rate'—the proportion of stocks outperforming the benchmark during their time on the list. Second, 'idiosyncratic return'—using a seven-factor model (beta, industry/size, dividend, growth, value, interest rates, credit) to isolate company-specific excess returns after removing macro and style exposures. Core Methodology: 'Earnings Drive Price.' Statistical analysis shows strong persistence in earnings beats—companies beating expectations have an 83–86% chance of doing so again next quarter and continue outperforming the market. Conversely, consistent misses lead to prolonged underperformance. This supports two disciplines: hold winners longer, cut losers earlier, countering behavioral biases like 'premature profit-taking' and 'rationalizing broken catalysts.' Valuation Methods: Tailored to each sector—e.g., energy stocks COP uses P/E, EV/DACF, and 20-year DCF; GLNG primarily unlevered DCF plus M&A scenario value; TPG uses sum-of-the-parts (SOTP); REIT BRX uses AFFO multiples; most industrial/tech stocks use P/E or EV/EBITDA.

Methodology notes

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  Using a seven-factor model (beta, industry/size, dividend, growth, value, interest rates, credit) to strip out style exposures and measure a stock’s 'idiosyncratic return'

  This means decomposing a stock’s return into 'macro/style-driven' and 'company-specific' components. After removing the former, what remains is the true alpha generated by stock selection. Goldman uses this to show buy-list stocks consistently generate positive idiosyncratic returns, while sell-list stocks produce negative ones.

• Event-Driven & Behavioral FinanceExpectation Gap / Expectation Management

  Earnings beats exhibit persistence: firms beating expectations in one quarter are significantly more likely to do so again next quarter

  Simply put, there’s strong 'momentum' in earnings—a company that beats expectations tends to keep doing so, and market forecasts are often revised upward, fueling further gains. This statistical pattern underpins the list’s discipline of 'holding winners longer.'

• Event-Driven & Behavioral FinanceBehavioral bias analysis

  Investors tend to exhibit the bias of 'taking profits too early and rationalizing adverse catalysts'

  Human nature leads investors to lock in gains prematurely and cling to losing positions by making excuses when fundamentals deteriorate. The report explicitly identifies this bias and counters it with disciplined rules—hold winners, cut losers—reminding readers that sound investment processes actively fight instinct.

• Valuation methodsSOTP Sum-of-the-Parts Valuation

  Valuing TPG by summing up cash flows from its different business segments

  When a company comprises distinct businesses, valuing each separately and summing the values is more accurate than applying a single multiple. Goldman uses this method for TPG (private equity, credit, real estate) to derive its target price.

• Valuation methodsDCF Discounted Cash Flow

  Using long-term DCF for energy stocks (COP, GLNG), augmented with scenario/M&A values

  Discounting projected free cash flows over many years to determine intrinsic value—suited for capital-intensive, long-cycle energy assets. For GLNG, additional weight is given to the potential value of a fourth vessel acquisition.

• Industry/Supply Chain FrameworkSupply-demand framework

  Waste industry supply-side dynamics: landfill concentration and high repricing contract share support pricing power

  In some industries, supply-side factors dominate. CWST’s waste sector features scarce landfill permits and high concentration among leaders (top two players control 93% in its region), with 70–75% of contracts immediately repricable, enabling sustained inflation-plus pricing.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  COP transitions from 'heavy investment' to 'harvest phase,' with free cash flow turning positive

  As major projects come online and capex declines, free cash flow improves markedly, enabling higher dividends and buybacks. Based on this, Goldman expects COP’s per-share FCF to grow ~24% annually from 2025–2030.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Casella Waste Systems (CWST)

  Newly added this period; favored for waste pricing algorithm driving mid-single-digit organic EBITDA growth, SG&A savings, and M&A synergy potential

  Strengths

  100% of revenue from recycling and waste, lowest commodity risk (10% commodity move affects EBITDA by <0.2%); 70–75% contracts immediately repricable, enabling sustained pricing ~150bp above inflation; largest M&A growth runway within coverage

  Weaknesses

  Integration challenges from prior GFL Mid-Atlantic acquisition; valuation shifted from premium to discount (integration largely complete, focus now on synergy capture)

  Comparison

  Top two landfill operators in its local market control 93% combined share, versus 84% industry average

  Risks

  Accelerating cost inflation, M&A integration risks, intensified M&A competition

• TPG (TPG)

  Newly added this period; stock down ~40% YTD, but fundraising in private equity, credit, and real estate stronger than feared

  Strengths

  Base management fees expected to grow ~20% in 2026/2027; fee-related margin expanding 300bp this year; credit solutions demand at historic highs, non-trade BDC redemptions only 1.3% (vs. industry avg >10%)

  Weaknesses

  Equity compensation growth, potential fundraising slowdown

  Comparison

  Blostein’s forecast averages ~8% above Visible Alpha consensus

  Risks

  Rising equity incentives, slower fundraising, declining demand for 'impact' and renewable energy funds

• Tyson Foods (TSN)

  Newly added this period; largest U.S. protein processor and marketer, benefits from diversified protein mix and operational improvements

  Strengths

  Strong chicken demand and relative value vs. other proteins; resilient prepared foods; leverage improved to 2.1x net debt/EBITDA, buybacks resumed

  Weaknesses

  Beef costs remain an industry headwind (tight supply)

  Comparison

  FY26/FY27 EPS forecasts of $4.13/$4.67, 2–3% above consensus

  Risks

  Economic slowdown dampening consumption, shifts in protein preferences, rising grain/feed costs, tariff changes, animal disease outbreaks

• Block (XYZ)

  Newly added this period; parent of Square and Cash App, new banking and payments platform, plus AI efficiency narrative

  Strengths

  Accelerating merchant acquisition via Square; Cash App transitioning to high-multiple 'business enablement' revenue; 40% layoffs and internal AI applications improving margins

  Weaknesses

  Expansion of Cash App lending raises investor concerns about credit cycle exposure

  Comparison

  2027 EPS forecast 4% above consensus

  Risks

  Deteriorating macro conditions, intensifying competition, adverse regulation

• Ares Management (ARES), Kontoor Brands (KTB), Wynn Resorts (WYNN)

  Removed this period (still rated Buy); ARES and WYNN missed earnings for two consecutive quarters

  Weaknesses

  ARES and WYNN missed EPS expectations for two straight quarters, dragging list performance

Key data

• Equal-weighted list return over past 12 months+28%Underperforms cap-weighted S&P by ~180bp, outperforms equal-weight S&P by ~760bp
• List return since inception (June 2023)+87%Outperforms equal-weight S&P by ~2990bp, outperforms Goldman coverage by ~2480bp
• S&P 500 gain since ChatGPT launch84%Nearly two-thirds driven by earnings growth, not multiple expansion
• Year-end 2026 S&P 500 target8,000 pointsDoes not require multiple expansion; relies on 24% EPS growth
• Expected EPS growth for new additionsXYZ 2026/2027: +64%/+36%; TSN FY26/FY27: $4.13/$4.67XYZ 2027 EPS 4% above consensus, TSN 2–3% above
• Proportion of new additions beating earnings in first quarter~78%On average outperformed S&P by ~215bp around earnings
• U.S. power demand CAGRRaised to 3.2%Up 60bp from prior, driven by data center load
• Inflation and interest ratesApril CPI 3.8%, 10-year Treasury yield 4.48%CPI up from 2.7% in Dec 2025; gasoline prices up >50% YTD

Impact & implications

The report believes U.S. equities will continue to rise, recommending overweight positions in stocks with the strongest earnings momentum and those benefiting from AI infrastructure buildout, while also holding names with earnings tailwinds but low correlation to AI trades. The firm notes that given strengthening momentum trends and mid-term election seasonality, some tactical hedging may be prudent. For companies on the list, continued earnings delivery and sustained beats imply potential multiple expansion. Goldman repeatedly emphasizes 'earnings drive price' as the core rationale for holding and adjusting positions. Important note: This is a summary of views—the addition or removal of names does not reflect rating changes; removed names ARES, KTB, and WYNN remain rated Buy.

Risks

• Given strengthening momentum trends and mid-term election seasonality, tactical hedging may be prudent
• Market gains concentrated in a narrow set of tech stocks; the list’s underweight in these sectors previously weighed on performance
• Skepticism remains about AI’s ability to create value outside the AI ecosystem, and where value accrues along the chain is uncertain
• The firm expects future returns to rely more on earnings growth than valuation expansion, which may slow overall returns

What to watch

• Progress on the five key themes: AI and Power, Productivity and Margins, Inflation and Rates, Consumer Resilience, Geopolitics and Remilitarization
• Whether subsequent earnings reports from list stocks continue the trend of persistent earnings beats
• Next phase of AI (agentic AI) impact on compute architecture—token consumption could increase 24x, favoring CPU-heavy workloads
• Trends in inflation and rates (CPI, 10-year Treasury yield, oil prices, Strait of Hormuz situation)