By Ian Salisbury

One more sign U.S. consumers are feeling worried is that Goldman Sachs just added Walmart and McDonald's to its list of favorite stocks.

While the stock market continues to soar, most Americans remain glum about the economy. Last week, the University of Michigan consumer sentiment index came in at 58.2 in August, up from this spring, but still one of its lowest readings in the past decade. A recent Wall Street Journal poll found the share of people who think they have a good chance of improving their lot is at their lowest since the 1980s.

The frustrations could play to the advantage of stocks like McDonald's and Walmart, according to a note from the bank on Tuesday. Goldman added the two stocks, along with oil refiner Valero Energy and Cadence Design Systems to its "Conviction List" of 22 strongly held Buy ideas.

Shares of McDonald's have languished recently, returning just 32% over the past three years compared with 72% for the market as a whole, according to FactSet. Fast-food chains have struggled, partly because higher costs for labor and ingredients have forced them to raise prices at the same time inflation has added to the financial strain on their customers.

Still, the burger chain posted better-than-expected second-quarter earnings last month. On Tuesday, McDonald's said it would bring back Extra Value Meals, such as the $5 Sausage McMuffin and $8 Big Mac meals, to attract more cost-conscious diners. Shares rose nearly 1% in midday trading.

Goldman believes the economic climate will play into McDonald's hands. The chain "has the scale, marketing and digital presence to successfully navigate an uncertain consumer environment," wrote the investment bank. Its 12-month target for the stock price, now at about $315, is $355.

Walmart has had greater success in the current economy, partly because of its fast-growing online presence. Shares have returned 129% over the past three years, easily beating the broad market but also boosting Walmart's valuation. The stock now trades at nearly 35 times forward earnings, its highest level in more than 20 years.

Goldman, which has a 12-month price target of $114 on the $98 stock, thinks it still has plenty of room to run. Walmart "is well positioned through its everyday low prices strategy to continue to gain share in a retail environment that is battling higher merchandise costs driven by new tariffs," the bank wrote.

Goldman's other two picks are less dependent on the economic climate. It sees Valero Energy benefiting both from OPEC's recent decision to increase oil production and constrained refining capacity in the U.S. refining capacity. Lower crude prices would tend to reduce Valero's costs, while a lack of refining capacity could support prices of the gasoline and other fuels the company makes.

The bank has a six-month price target of $162 on the stock, which currently trades at $153.

For Cadence Design Systems, currently at $355, Goldman has a 12-month price target of $400. It sees the chip designer benefiting from increased demand for custom chips and opportunities to license its intellectual property.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 02, 2025 14:24 ET (18:24 GMT)

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