US Conviction List - Directors’ Cut Report Interpretation

Overview

This monthly US Conviction List update combines market commentary, list performance and refreshed investment cases for 23 Buy-rated US stocks. Goldman Sachs adds Vertex Pharmaceuticals (VRTX) and emphasizes that the list is selected for differentiated bottom-up ideas and expected risk-adjusted returns, rather than as a portfolio or macro call.

Core views

Goldman Sachs says August brought substantial news but limited change in the broad market backdrop. The S&P 500's August gains occurred early in the month following mega-cap technology results, while subsequent trading was directionless. Ten-year Treasury yields rose only 9bp during August and front-month Brent was only marginally above its July 31 level. The report notes that gold, silver and bitcoin rose 9%, 22% and 24%, respectively. With the S&P 500 at 20x next-12-month earnings, the same multiple as at the start of the year despite a 12% year-to-date gain, Goldman Sachs argues that earnings—not multiple expansion—has driven the market. The median S&P 500 company delivered 14% EPS growth in 2Q26. The macro discussion identifies several variables that could shape the rest of 2026. Goldman Sachs raised its 3Q GDP tracker by 30bp to 2.7% after stronger July personal spending, while headline PCE inflation was 3.70% in July. It expects inflation to decline as the Strait of Hormuz reopens and tariff pressure recedes, though neither progressed materially in August. The report sees a possible September Fed hike only if CPI and PCE are firmer, which it does not expect. Treasury's increased bond repurchases may help market technicals but are not expected to cause a major decline in long-term yields. The Strait disruption has encouraged producers and shippers to adapt, reducing prospective oil-price pressure, but Goldman Sachs retains a €50/MWh base-case forecast for European natural gas this winter and highlights upside risk if shipments do not resume to Asia. AI remains a central cross-sector growth theme. Nvidia's outlook implied 70% further year-on-year growth in 2027, constrained mainly by ecosystem inputs. The report links data-center buildouts to demand for semiconductor equipment, networking hardware, power infrastructure and funding. It also distinguishes companies already monetizing AI investments from those seeking longer return timelines. Relevant Conviction List exposures include MSFT, CLS, AMAT and NXT. The list contains 23 Buy-rated stocks and added VRTX while removing IBKR on September 1; Goldman Sachs explicitly states that list changes do not necessarily alter an analyst rating. The list targets 20-25 ideas chosen by an Investment Review Committee from US research coverage. Its median upside to price targets is 27%, median upside to consensus FY2 KPI is 2%, median FY2 revenue growth is 6%, and 82% of names have upside to FY2 KPI. The August 2026 hit rate versus the S&P 500 was 39%, while life-to-date hit rates were 47% versus the S&P 500, 50% versus equal weight, 49% versus GICS sectors and 51% versus Goldman Sachs Americas coverage. The refreshed company cases span distinct earnings inflections. In technology, AMAT is positioned for rising leading-edge logic, DRAM and advanced-packaging spending, with semi-equipment growth guidance raised about 1,500bp to more than 35% for CY26. CLS is expected to benefit from hyperscaler data-center investment, 800G/1.6T switching and higher-margin design work; its CCS segment is expected to grow 85% in 2026. MSFT's case rests on Azure monetization, enterprise AI integration and Copilot adoption, with more than 30 million paid Copilot seats at June-quarter end. Block is expected to pair Square merchant growth and Cash App monetization with margin gains from a 40% workforce reduction and AI-driven efficiency. Across industrials and consumer names, the report highlights specific self-help and demand drivers: APD's return to core industrial gases and capital discipline; CSL's roofing recovery, pricing and cost actions; CWST's pricing, integration synergies and local consolidation; DAL's industry capacity discipline and premium mix; LOAR's aerospace aftermarket and acquisition runway; UPS's shift away from lower-margin Amazon volume and network cost reduction; ORLY's DIFM share gains and buybacks; DASH's local-commerce expansion; EL's innovation-led recovery; TSN's protein demand and execution improvements; and VIK's affluent customer base, pricing and capacity growth despite river-water disruption. In financials, CFG's return improvement is tied to NIM expansion, private-bank growth and its Reimagine the Bank efficiency program. TPG's thesis centers on fundraising, private-credit deployment, real-estate fundraising and fee-margin expansion. WFC is expected to benefit from balance-sheet expansion, NII growth, capital-markets and card share gains, and cost discipline. In natural resources, COP is presented as entering an investment-harvesting phase, with four major projects and cost savings expected to add about $7 billion of free cash flow by 2029 at $70/b WTI. GLNG's long-term contracted FLNG backlog is expected to lift annual run-rate EBITDA from about $260 million in 2025 to about $1.2 billion by 2030. NXT is broadening beyond solar trackers into storage, eBOS and software, supported by backlog above $5.5 billion. VRTX is the new addition. Goldman Sachs sees up to five multi-billion-dollar commercial opportunities across cystic fibrosis, acute and chronic pain, kidney disease, hematology and proposed endocrinology expansion through CRNX. The report highlights the November 30 PDUFA date for povetacicept in IgA nephropathy, early-2027 interim data for inaxaplin in APOL1-mediated kidney disease, and future Journavx pain data. It argues that consensus does not fully reflect several pipeline and commercial opportunities.

Analysis framework

Goldman Sachs first reviews market and macro variables, then evaluates the Conviction List's performance and composition. It selects ideas from bottom-up sector analyst work, using company operating drivers, earnings estimates, catalysts, risks and stock-specific valuation frameworks; macro effects are incorporated into estimates rather than used to construct a thematic or factor portfolio.

Methodology notes

• Quantitative, Factor, and Portfolio Theory

  Conviction List performance and hit-rate comparison

  The report compares each stock's returns with the S&P 500, equal-weight S&P 500, sector and Goldman Sachs Americas coverage. Its hit rate is the percentage of list stocks outperforming the stated benchmark while on the list.

• Valuation methods

  Company-specific target-price valuation

  Individual stock cases use valuation methods suited to each company, including P/E, EV/EBITDA, DCF, sum-of-the-parts and blended approaches, to derive 12-month targets.

Asset mapping & comparison

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

• Vertex Pharmaceuticals (VRTX)

  New Conviction List addition; pipeline and commercial expansion case.

  Strengths

  CF franchise, kidney-disease launch opportunity, Journavx momentum and potential CRNX endocrinology pillar.

  Comparison

  Goldman Sachs estimates $5.8bn 2035 global peak sales for povetacicept in IgAN versus $3.2bn consensus.

  Risks

  Clinical, regulatory, commercial, competition and reimbursement risks.

• Applied Materials (AMAT)

  AI and semiconductor-capex beneficiary.

  Strengths

  High exposure to deposition and etch, leadership in leading-edge logic, DRAM and advanced packaging.

  Comparison

  More than 65% exposure to deposition and etch.

  Risks

  Export restrictions and China-based supplier share gains.

• Celestica (CLS)

  AI data-center equipment and design-services beneficiary.

  Strengths

  Data-center scale, 800G switching leadership and growing ODM mix.

  Weaknesses

  Customer concentration and supply constraints can create volatility.

  Comparison

  32% revenue share in 800G data-center switching as of 1Q26, per 650 Group.

  Risks

  Competition, margin pressure, data-center demand slowdown and supply constraints.

• ConocoPhillips (COP)

  Energy cash-flow inflection from projects entering service and lower capex.

  Strengths

  Project pipeline, cost reductions, OECD-weighted portfolio and shareholder-return capacity.

  Weaknesses

  Commodity-sensitive earnings.

  Comparison

  Goldman Sachs estimates about $7bn of incremental free cash flow by 2029 at $70/b WTI.

  Risks

  Commodity prices, capital spending and operational execution.

• Microsoft (MSFT)

  Enterprise AI monetization and cloud-efficiency beneficiary.

  Strengths

  Azure scale, enterprise integration, security controls and accelerating Copilot adoption.

  Weaknesses

  Capacity allocation reduces near-term predictability.

  Comparison

  More than 30 million paid Copilot seats at June-quarter end.

  Risks

  Copilot execution, silicon ramp, incremental investment and custom-software disruption.

• Golar LNG (GLNG)

  Long-term contracted FLNG expansion and strategic-review optionality.

  Strengths

  Long-term take-or-pay contracts and scarce shipyard capacity.

  Weaknesses

  Construction and commercialization execution remain required.

  Comparison

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

  Risks

  Project execution and failure to realize pipeline growth.

Key data

• Conviction List size23 Buy-rated US stocksVRTX added and IBKR removed in the September update.
• Median target-price upside27%Across the Conviction List.
• Median FY2 revenue growth6%Across the Conviction List.
• S&P 500 valuation20x NTM P/EGoldman Sachs says the multiple was unchanged despite the index being up 12% year to date.
• Median S&P 500 2Q26 EPS growth14%Cited as evidence of broad earnings strength.
• 3Q GDP tracker2.7%Raised by 30bp during August.
• July headline PCE inflation+3.70%Reported inflation reading.

Impact & implications

Goldman Sachs frames the list as a set of bottom-up Buy ideas supported by earnings growth, company-specific execution and identifiable catalysts. Its market view places particular importance on earnings resilience, AI-related investment, rates and inflation, energy-market disruption, and the ability of individual companies to improve margins, cash flow or competitive position.

Risks

• A firmer-than-expected inflation path could change Fed policy and increase volatility.
• Energy-market disruption, including uncertainty around the Strait of Hormuz, can affect commodity prices and exposed companies.
• The company cases face explicit operational, demand, competitive, regulatory, project-execution and valuation risks detailed in their respective sections.

What to watch

• US earnings results and revisions, particularly for list names where Goldman Sachs is above consensus.
• CPI, PCE, Fed communication and long-end Treasury-yield developments.
• Developments in Strait of Hormuz shipping, European natural-gas prices and refinery outages.
• Hyperscaler capex, semiconductor demand and evidence of AI monetization.
• VRTX's November 30 povetacicept PDUFA and subsequent pipeline milestones.