Goldman Sachs has recently identified a basket of stocks that have experienced share price pressure but continue to display compelling fundamental strength, suggesting investors could capitalise on the pullback to build positions. The list features Alibaba (BABA.N), Ulta Beauty (ULTA.O), Burlington (BURL.N), AECOM (ACM.N), and Viking Holdings (VIK.N). While the headwinds confronting these companies vary, the bank contends that market sentiment has already priced in an excessive degree of pessimism for several of these names.
Among them, Alibaba remains one of Goldman Sachs' preferred Chinese internet plays. The firm projects earnings per share growth of 64% and 33% for fiscal years 2027 and 2028, respectively, with profit recovery expected to accelerate notably starting from the September quarter. Consequently, the bank reaffirms its 'Buy' rating. Goldman attributes Alibaba's earnings improvement to two primary drivers. First, the company maintains a leading position in China's AI and cloud computing markets, with cloud revenue growth poised to accelerate further. Second, overall profitability in its e-commerce segment is anticipated to recover, while losses in its instant retail business are set to narrow progressively.
In its June 2026 quarter results released on August 20, Alibaba reported a 9% year-on-year revenue increase to RMB 268.953 billion. Notably, AI cloud and computing services revenue jumped 45% year-on-year to RMB 48.437 billion, marking the fastest growth in 22 quarters. The segment's adjusted EBITA surged 133% to RMB 5.628 billion, with margins improving to approximately 12%. More critically, revenue from AI-related products has achieved triple-digit year-on-year growth for 12 consecutive quarters. Meanwhile, China's instant retail revenue climbed 45% to RMB 53.295 billion. However, it is worth acknowledging that the country's instant retail sector has endured over a year of intense price competition, with Alibaba, Meituan, and JD.com all deploying substantial subsidies. The industry is only now beginning to transition from chasing scale to enhancing profitability.
Within the US consumer space, Goldman also sees the recent pullback in Ulta Beauty as a buying opportunity. The stock has declined nearly 7% year-to-date. Analyst Kate McShane noted that investors might be concerned about increased promotional activity in the second quarter for both Ulta and the broader beauty sector, coupled with guidance suggesting a sequential slowdown in revenue growth for the second half. Nevertheless, Goldman believes the market reaction is exaggerated. Despite intense competition, Ulta retains the capacity to gain market share, and its full-year guidance may prove conservative. As such, the bank continues to view the stock as a worthy dip-buying candidate. Reuters also highlighted that Ulta's second-quarter growth was underpinned by demand from high-income consumers and Gen Z beauty enthusiasts, with the company expanding its premium and exclusive product assortment.
McShane also holds a favourable view of Burlington. The company's quarterly results released in late August painted a mixed picture: margin execution was robust, and the company raised its fiscal 2026 guidance on an adjusted basis. However, second-quarter comparable sales grew only 2%, and the third-quarter same-store sales outlook fell short of investor expectations. The stock has dropped about 8% this year. Goldman argues that Burlington still has multiple earnings growth supports ahead, including strong margin leverage, productivity from new stores, and various operational improvement opportunities. The company plans to open approximately 115 net new stores in fiscal 2026, targeting total sales growth of 10%-11%. In other words, the recent sales deceleration does not alter Goldman's assessment of the company's medium-term earnings power.
Viking Holdings has suffered a steeper decline, shedding roughly 20% over the past month. Unusually low water levels on parts of European rivers have negatively impacted its river cruise operations, while uncertainties surrounding the broader cruise industry and consumer spending persist. This year, sections of the Rhine, Danube, and Elbe have experienced abnormally low water levels, and on September 1 Viking indicated that some itineraries might require adjustments. The company stated it operates the industry's largest owned river cruise fleet and mitigates disruptions by swapping passengers between identical sister ships on either side of affected stretches. Analyst Lizzie Dove, however, believes Viking's differentiated regional offerings and affluent customer base are sufficient to offset the volatile cruise market environment. Goldman anticipates the company will maintain industry-leading pricing growth and capacity expansion through the second half of 2026 and into 2027.
AECOM, a premier global infrastructure firm specialising in planning, design, engineering, consulting, and project/programme management, has seen its valuation compress recently due to two key concerns. First, there is apprehension that artificial intelligence could disrupt the engineering and design sectors. Second, investors are wary of uncertainties related to claims from two legacy building management projects. Goldman argues that both factors have weighed on AECOM's valuation multiples, but the current de-rating stems primarily from pressures in its construction management business. In other words, while fears about AI disrupting engineering design exist, they are not the main catalyst behind this valuation contraction. Furthermore, analysis suggests AECOM is not passively waiting for AI's impact. Its fiscal 2026 plan already includes increased investment in AI development and deployment, positioning AI as a tool to enhance efficiency across its engineering and consulting services.
The underlying narratives for these stocks differ considerably. Ulta Beauty and Burlington are primarily weighed down by short-term consumer spending and earnings expectations, Viking Holdings faces headwinds from travel industry dynamics and European river levels, AECOM grapples with technological shifts and legacy project claims, and Alibaba sits at the intersection of AI, cloud computing, and e-commerce profit recovery. Goldman's shared conclusion is that recent share price and valuation adjustments have, to varying degrees, already reflected these risks. Meanwhile, future earnings growth, business improvements, and competitive strengths have yet to be fully appreciated by the market. Therefore, in the bank's view, these beaten-down stocks still offer compelling 'buy the dip' value.
Comments