As readers will be aware, every day brokers slap buy, hold, and sell ratings on countless ASX shares.
However, one thing you may not know is that not all brokers stop at "buy." Some brokers have an even higher rating to demonstrate that they are especially bullish on a share.
Goldman Sachs, for example, has a coveted conviction list for this exact purpose. And three ASX 200 shares that make the list right now are listed below.
Here's what Goldman is saying about them:
NextDC Ltd (ASX: NXT)
Goldman currently has a conviction buy rating and $14.30 price target on this data centre operator's shares. Based on the current NextDC share price of $9.76, this implies potential upside of 47% for investors.
Goldman notes that NextDC recently revealed that its sales pipeline has hit a record size, which bodes well for growth. It was also pleased to see that guidance has been reiterated. The broker saidL
NXT provided a tangible comment on the sales pipeline, noting that it is of a record size, and is expected to convert into material new contractual commitments into the next 6-12 months. We see this as clear positive statement, noting it is the first time NXT has been specific on the timing of material new contracts.
NXT noted continued strong growth in enterprise, network and partner pipelines driving healthy margin, with revenue growth assisted through price escalation & power pass-through. Although we had seen limited risk to NXT guidance in FY23, we still view this as a positive.
Qantas Airways Limited (ASX: QAN)
Like many in the market, Goldman Sachs was very impressed with Qantas' trading update last week. That update saw the airline operator upgrade its first half earnings guidance just a touch over a month after issuing it.
In response, the broker reiterated its conviction buy rating with an improved price target of $8.20. Based on the current Qantas share price of $6.06, this suggests potential upside of 35%. The broker commented:
With the market capitalization 5% above pre-COVID levels and EV (based on last reported net debt) 12% below pre-COVID, we believe the stock is not appropriately pricing QAN's improved earnings capacity. Specifically, our forecast FY23e EPS is 58% above FY19a levels with group capacity still 21% below pro-COVID levels. Even as the yields moderate (with capacity restoration) our FY24e EPS (100% of FY19 capacity) is 46% above FY19 levels.
Webjet Limited (ASX: WEB)
Another travel share that Goldman has on its conviction list is online travel booker Webjet. The broker has a conviction buy rating and $6.90 price target on its shares. Based on the latest Webjet share price of $6.19, this infers potential upside of 11.5% for investors.
Goldman believes that Webjet's recent half year results demonstrate that it has come out of COVID as a much stronger business and is well-placed to benefit from the shift online. It said:
WEB's 1H23 results reported a strong beat across both the Webbeds and Webjet OTA business, cementing our view that the business is structurally improved vs. pre-pandemic times on profitability and scale in the Bedbanks business and is well poised to capitalize on the improving online channel penetration in their B2C business.
