Goldman Sachs: Buy these 20 stocks poised for up to 50% upside over the long term as inflation cools down in 2023

• Inflation is expected to cool down in 2023, partly due to the Inflation Reduction Act.
• Goldman Sachs analysts identified twenty key stocks poised to benefit from this bill.
• The bank expects seven names in the clean technology industry to have over 50% upside.

One of the biggest themes that characterized 2022 was raging inflation persisting at 40-year highs, burning holes in the wallets of American consumers.

But this year investors are much more optimistic about taming inflation due to the massive monetary and fiscal policies the Federal Reserve and the Biden administration have undertaken.

Last March, Fed Chair Jerome Powell embarked on an aggressive interest rate-hiking cycle, while President Joe Biden signed the Inflation Reduction Act in August. This combination seems to have paid off, as inflation rose at its slowest pace in a year in November, coming in below analyst expectations. Now many Wall Street investors are predicting lower inflation in 2023, with TD Securities’ Priya Misra forecasting it will settle around 3% by year-end.

Still, according to a Goldman Sachs note published on January 2, the Inflation Reduction Act — which promises to tackle high prices by addressing spiraling healthcare costs, emphasizing clean energy, and raising corporate tax rates — will have sweeping and long-lasting effects on investors.

“While passage of the Inflation Reduction Act in late 2022 has been met with much fanfare and broad thematic coverage, we believe stock-specific implications are quite wide-ranging from both an impact and timing perspective across multiple sectors,” wrote a team of analysts, led by Goldman Sachs’ chief risk officer Brian Lee.

In the report, Lee and his team analyzed the impact of the Inflation Reduction Act, or IRA, based on a company’s US sales exposure, IRA sales exposure, and IRA stock impact, identifying 20 stocks as the biggest beneficiaries of the act.

20 stocks to profit from taming inflation

According to Lee, IRA tailwinds could drive over 50% upside in earnings or stock prices in 20 select stocks as early as 2023. He estimates that the remaining twelve names, on the other hand, will see share prices or earnings rise anywhere between 5% to 50%.

“Not surprisingly, we see the most impact in clean tech and energy areas of our coverage but also see a number of stocks in other industries with significant leverage and upside to numbers from the IRA,” Lee wrote. “Many of these should see impact starting from next year, while others may see a bit more of an out-year impact.”

Since the IRA directly benefits clean energy and solar manufacturing companies, it’s no surprise the clean technology industry is poised to reap the greatest rewards out of the seven industries identified by Lee and his team. “The IRA clears the way for at least a decade-long runway for stable installation growth across all residential, commercial and utility-scale markets,” he wrote.

Through the IRA’s promotion of tax and vehicle credits, other winners include hydrogen and chemical companies involved in or planning upcoming clean hydrogen projects, along with firms that have exposure to electric vehicle and battery industries. The IRA will also incentivize the industrial and agribusiness and environmental services industries.

Surprisingly, the 20 stocks poised to benefit from IRA also included names from energy services and financials, two sectors with “underappreciated upside,” Lee wrote.

“We believe energy services companies, whose customers are both oil/gas companies and utilities, are well positioned to expand their exposure into hydrogen, renewables and transmission, though we believe this opportunity has been relatively underappreciated by investors,” he explained, specifically highlighting the incentives for companies to achieve net zero targets. Likewise, Lee believes that asset managers with a focus on renewable energy are also the most likely to reap rewards.

Below are the 20 stocks Lee and his team identified as the biggest IRA beneficiaries. Each company is listed along with its ticker, industry, market capitalization, 12-month price target, and, where applicable, the potential upside of its share price.