Three stocks have been added to Goldman Sachs' conviction buy list, one of which is expected to rise 100%

There have been a number of stocks that Goldman Sachs has added to its conviction list this year - stocks that have been rated as buys by the firm, and it expects them to outperform the market this year.

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Rio Tinto

The most recent addition to the company was the Australian miner Rio Tinto on March 3. On the back of an expected recovery in China, Goldman Sachs has turned bullish on commodities such as iron ore on the back of a bullish outlook for the market.

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The bank's analysts stated in the March 3 note that the bank had recently raised its forecast for the iron ore price from $100 per metric ton to $120 per metric ton, as a result of an expected recovery in Chinese steel volumes, among other factors. Additionally, they noted that the property market in China has been recovering in recent years.

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There is an expectation that property sales will lead to a rise in steel demand, according to analysts. “Moreover, these dynamics are playing out while the iron ore inventories at Chinese steel mills are at their lowest levels since 2016, with some mills starting to restock in recent weeks as a result of these dynamics.”

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The bank said that it has added Rio Tinto to its conviction list as a result of Rio Tinto's "compelling" relative valuation compared to its peers, its strong free cash flow, its dividend yield, and considering the bank's "bullish view" of the iron ore, aluminum, and copper markets.

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Rio Tinto was given a price target of $140, representing a 10% upside from Friday's close.

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Iron ore prices weakened last week on slowing Chinese demand and higher labor costs, resulting in Rio Tinto posting a 38% drop in annual profit for 2022. In contrast, the outlook for China is expected to brighten up, with signs of a rebound in consumption in the country as a result of the country's reopening.

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Sea

The Goldman Sachs firm recently added another stock to its conviction list in the Southeast Asian tech giant Sea.

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The bank raised its 12-month price target on the stock to $132, representing an upside of 101% as compared to the stock's Friday closing price on the New York Stock Exchange.

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As Goldman reiterated in a note dated Feb. 16, it continues to believe the stock will outperform on profitability this year, as well as demonstrate a return to growth, as evidenced by its buy rating. Two of the company's major money-making divisions are Shopee, an e-commerce platform that offers online shopping, and Garena, a gaming firm that offers online gaming.

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Based on earnings turning positive and attractive valuations, Goldman analysts see a "visible path towards sustained share price recovery."

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The banks predict that the company's share price will reach $219 in a bull case scenario - a potential increase of more than 240%.

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“If we assume the valuation multiples recover to where Sea's segments used to trade on improving sentiment/outlook, we see a 242% upside potential,” the bank said.

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Alibaba

As a follow-up to Goldman's addition of Alibaba to its conviction list in January of this year, the above conviction list additions come after that.

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As China reopens in 2023, the outlook for Alibaba has improved, and considering the stock is one of the best ways to gain exposure to the rebound in the China internet sector, Goldman said.

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“With China's faster-than-expected reopening, macro recovery from 2Q, and normalizing internet regulations, we see further earnings upside for the China internet sector," the bank said in a January 9 note.

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Alibaba's price target was also raised to $138, giving the stock over a 50% upside from Friday's close.