US Conviction List - Directors' Cut Report Interpretation

Overview

This monthly US Conviction List update combines market commentary, performance review, and refreshed bottom-up investment cases for 23 Buy-rated US stocks. Goldman Sachs adds Vertex Pharmaceuticals and emphasizes that the list is a curated set of independent ideas rather than a diversified portfolio or a thematic allocation.

Core views

Goldman Sachs argues that market fundamentals remained stronger than headline market movement suggested in August. The S&P 500's gains occurred early in the month and subsequent trading was range-bound, but the median constituent delivered 14% EPS growth in 2Q26. With the index up 12% year to date yet still trading at 20x next-twelve-month P/E—the same multiple as at the start of the year—the report concludes that earnings, rather than multiple expansion, have driven equities. Goldman Sachs identifies earnings, Fed policy, Treasury activity, Strait of Hormuz developments, AI, and incoming data as the main variables that could alter the path through year-end. Its 3Q GDP tracker was raised 30bp to 2.7%, while July headline PCE inflation was 3.70%; the institution expects inflation to move lower if the Strait reopens and tariff pressure recedes. The list remains a bottom-up selection of 23 Buy-rated stocks, targeting 20-25 ideas with differentiated views and high risk-adjusted returns. Goldman Sachs adds VRTX and removes IBKR, explicitly noting that this is a committee decision about top ideas rather than an analyst rating change. The list's median price-target upside is 27%, median FY2 revenue growth is 6%, and 82% of names have upside to their FY2 KPI. Top highlighted price-target upside includes NXT at 72%, CLS at 69%, LOAR at 52%, DAL at 49%, and AMAT at 46%. August performance was mixed: TPG returned 25.3%, EL 22.3%, and DASH 18.1%, while VIK fell 17.5%, DAL 10.8%, CLS 9.7%, and AMAT 9.6%. The report's technology and AI cases focus on capacity expansion, monetization, and operating leverage. AMAT is positioned for increased spending on deposition and etch equipment, with semiconductor-equipment growth guidance raised about 1,500bp to more than 35% for CY26; its $670 target uses 32x normalized EPS of $21.00. CLS is presented as a data-center equipment and design beneficiary, with approximately 80% of revenue tied to data-center equipment and a forecast for 85% CCS revenue growth in 2026; Goldman Sachs forecasts 2027/28 EPS of about $22.47/$32.87 versus consensus of $19.37/$26.81. MSFT's case rests on Azure capacity and monetization, enterprise AI integration, and more than 30 million paid Copilot seats exiting June, including about 10 million net additions in the quarter. NXT is expanding from solar trackers into a broader power-technology platform, supported by backlog above $5.5bn and a targeted roughly 13% non-GAAP EPS CAGR through FY29. Across natural resources and industrials, the report emphasizes project execution, capital discipline, and cyclical recovery. COP is expected to move from heavy investment toward harvesting, with four growth projects and roughly $1bn of cost reductions potentially adding about $7bn of free cash flow by 2029 at $70/b WTI; its $146 target blends fundamental and M&A theoretical values. GLNG's contracted EBITDA is forecast to rise more than fourfold from about $260mn in 2025 to around $1.2bn by 2030 as floating LNG vessels ramp under 20-year contracts. APD's return-to-core strategy is expected to support 10%+ through-cycle EPS growth, aided by lower growth capex and deleveraging. CWST's case relies on pricing, synergies, and local consolidation: pricing has averaged roughly 150bp above CPI less food and energy over five years, while management identified about $30mn of cost opportunities. Financial and consumer-related cases are framed around efficiency, higher-quality growth, and margin recovery. CFG is expected to reach the lower end of its 16-18% ROTCE target by 2H27, supported by NIM expansion, private-bank growth, and a "Reimagine the Bank" program targeting $450mn of pre-tax run-rate benefit by 2028. TPG is forecast to deliver approximately 20% year-on-year base management-fee growth in both 2026 and 2027, with 2026 FRE margin of 47.6%. DASH is expected to grow revenue 29% in 2026 and generate $3.2bn of 2027 free cash flow after stock options; Goldman Sachs highlights improving grocery and retail unit economics and DashPass conversion. UPS is expected to return to 4%-6% annual revenue growth through 2028 as it replaces lower-margin Amazon volume with higher-margin customers and takes out further costs. DAL is supported by industry capacity discipline, premium-seat growth, and projected 300bp margin expansion over two years. VRTX is the report's sole list addition. Goldman Sachs sees up to five multibillion-dollar growth opportunities spanning cystic fibrosis, pain, kidney disease, hematology, and proposed endocrinology expansion through CRNX. The $653 target is based entirely on DCF using an 8% WACC and 1% terminal growth rate. The thesis includes a potentially rapid IgAN launch for povetacicept after the 30 November PDUFA, Journavx prescription growth, continuing CF innovation, and pipeline programs not included in Street models. Other selected recovery and compounding cases include EL's innovation-led revenue and margin recovery, UNH's Medicare Advantage margin recovery after shrinking lower-return exposure, LOAR's aerospace-aftermarket and M&A runway, TSN's protein-demand and execution improvement, and VIK's high-income customer base, pricing, and capacity growth despite recent river-cruise disruption.

Analysis framework

Goldman Sachs first assesses the macro and market backdrop, then reviews list performance and changes. It selects ideas through bottom-up fundamental analysis by sector analysts, using earnings and cash-flow forecasts, company operating drivers, peer comparisons, catalysts, risk scenarios, and company-specific valuation frameworks. The list is not designed to express deliberate factor, rates, inflation, or thematic exposures.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Price-to-earnings valuation

  The report applies target P/E multiples to forecast earnings for several covered companies, linking target prices to expected earnings delivery and relative valuation.

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash flow valuation

  For companies including VRTX, COP, GLNG, and DASH, Goldman Sachs estimates future cash flows and discounts them using stated costs of capital to derive value.

• Valuation methodsEV/EBITDA valuation

  Enterprise-value-to-EBITDA valuation

  The report uses EV/EBITDA multiples for companies where operating profitability is central to the valuation case, including CWST, LOAR, DAL, and VIK.

• Industry AnalysisSupply-demand framework

  Supply-demand analysis

  The report connects industry capacity, demand, pricing, and input conditions to company earnings in semiconductors, energy, airlines, industrial gases, and waste services.

• Corporate Fundamentals and FinanceFree cash flow analysis

  Free cash flow analysis

  Goldman Sachs assesses cash generation, capex, leverage, buybacks, and shareholder returns as core drivers for companies such as COP, DASH, CSL, DAL, GLNG, and VIK.

Asset mapping & comparison

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

• Vertex Pharmaceuticals (VRTX)

  New Conviction List addition; pipeline and commercial-growth opportunity

  Strengths

  Potentially five multibillion-dollar growth pillars, including CF, pain, kidney disease, hematology, and endocrinology.

  Comparison

  Goldman Sachs estimates FY27 IgAN revenue of $196mn versus $156mn Visible Alpha consensus.

  Risks

  Clinical setbacks, regulatory approvals, commercial execution, competition, and pricing or reimbursement pressure.

• Applied Materials (AMAT)

  AI and semiconductor-capacity beneficiary

  Strengths

  More than 65% exposure to deposition and etch, with strong positions in leading-edge logic, DRAM, and advanced packaging.

  Comparison

  Expected to gain share in high-growth equipment segments.

  Risks

  Export restrictions and China-based supplier share gains.

• Celestica (CLS)

  AI data-center equipment and design beneficiary

  Strengths

  Approximately 80% of revenue from data-center equipment and leadership in 800G switching.

  Weaknesses

  High customer concentration.

  Comparison

  Goldman Sachs forecasts 2027/28 EPS of ~$22.47/$32.87 versus consensus of $19.37/$26.81.

  Risks

  Competition, margin pressure, data-center spending declines, supply constraints, and ATS demand volatility.

• ConocoPhillips (COP)

  Energy cash-flow inflection

  Strengths

  Major-project pipeline, lower geopolitical-risk portfolio profile, and expected capital-return capacity.

  Weaknesses

  Capital-intensive project execution.

  Comparison

  Goldman Sachs estimates ~24% 2025-30 FCF per-share CAGR at $75/b Brent, or ~20% with commodity prices held flat versus 2025.

  Risks

  Commodity prices, capital spending, and operational execution.

• Golar LNG (GLNG)

  Contracted FLNG growth and strategic-optionality story

  Strengths

  Long-term take-or-pay contracts, fully funded project backlog, and scarce shipyard slots for vessels 5-7.

  Weaknesses

  Growth depends on vessel commercialization and construction execution.

  Comparison

  Contracted EBITDA is projected to rise from ~$260mn in 2025 to ~$1,200mn by 2030.

  Risks

  Project ramp-up and execution risk.

• Microsoft (MSFT)

  Enterprise AI monetization and cloud-efficiency beneficiary

  Strengths

  Enterprise distribution, AI integration capabilities, Azure monetization, and accelerating Copilot adoption.

  Weaknesses

  Supply constraints can reduce near-term capex-to-Azure predictability.

  Comparison

  Goldman Sachs sees FY28 operating-income upside of 5% versus the Street in a reasonable upside scenario.

  Risks

  Copilot execution, silicon-ramp delays, higher-than-expected investments, and custom-software displacement.

• UnitedHealth Group (UNH)

  Managed-care earnings-cycle recovery

  Strengths

  Medicare Advantage margin recovery, portfolio resizing, and cost-efficiency opportunity.

  Weaknesses

  Medicaid margin pressure and ongoing regulatory scrutiny.

  Comparison

  Goldman Sachs forecasts 17%+ average annual EPS growth through 2028 and ~23% adjusted-EPS growth in 2026 after a 40% decline in 2025.

  Risks

  Elevated utilization, regulation, pricing-utilization mismatch, and potential past-claims charges.

• Viking Holdings (VIK)

  Premium cruise growth and potential capital-return story

  Strengths

  Affluent 55+ customer base, pricing strength, limited Caribbean exposure, and high capacity growth.

  Weaknesses

  Recent Rhine and Danube disruption affected more than 50% of 3Q river-capacity cruise days.

  Comparison

  Capacity is projected to grow at about a 9% CAGR from 2025-28, with 15% growth in 2027.

  Risks

  Weaker leisure demand, lower FCF, leverage, excess supply, fuel costs, weather, illness, mechanical failures, and geopolitical risk.

Key data

• Conviction List size23 Buy recommendationsVRTX added and IBKR removed in the September update.
• Median S&P 500 EPS growth14%2Q26 median year-on-year EPS growth.
• S&P 500 valuation20x NTM P/EReported as unchanged from the start of 2026 despite the index being up 12% year to date.
• Conviction List median target upside27%Based on 12-month price targets.
• 3Q US GDP tracker2.7%Raised by 30bp during August.
• VRTX target price$653100% DCF valuation using 8% WACC and 1% terminal growth rate.
• GLNG contracted EBITDA~$1,200mn by 2030Versus approximately $260mn in 2025; more than fourfold increase.
• COP incremental free cash flow~$7bn by 2029From four major projects plus roughly $1bn of cost reductions and margin enhancements at $70/b WTI.

Impact & implications

Goldman Sachs' central message is that broad earnings strength supports a selectively constructive US-equity stance, but outcomes remain dependent on company execution and macro variables. The list concentrates on bottom-up opportunities where the institution sees earnings, cash-flow, margin, project, or pipeline developments that it believes are not fully reflected in consensus expectations.

Risks

• A firmer-than-expected inflation path or increased Fed uncertainty could raise market volatility.
• Energy, natural-gas, and refining-market outcomes remain sensitive to the Strait of Hormuz and related supply disruptions.
• Company-level theses depend on execution of projects, cost programs, capital allocation, product launches, fundraising, and demand assumptions.
• The report explicitly notes that the Conviction List is not a diversified portfolio and does not seek to manage factor or macro exposures.

What to watch

• Upcoming earnings and management updates across the list, particularly 3Q26 results.
• US inflation data, Fed communication, Treasury long-end buyback effects, and evolving energy-route conditions.
• VRTX's 30 November IgAN PDUFA, fall 2026 AMKD Phase 2 data, early-2027 AMKD Phase 3 interim data, and proposed CRNX acquisition closing.
• Hyperscaler capex plans and AI-related capacity, monetization, and silicon milestones for AMAT, CLS, and MSFT.
• GLNG fourth-vessel commercialization and a potential fifth-vessel FID by mid-2027.
• Evidence that margin, cost, and revenue-quality inflections are materializing at UPS, CFG, UNH, and other turnaround candidates.