Goldman's analysts see 11% upside to average S&P 500 stock over the next 12 months

Analysts at Goldman Sachs said in a note Thursday that they see 11% upside to the average S&P 500 stock over the next 12 months, similar to last quarter.

S&P 500 stocks have been less correlated over the past six months than any time over the past five years. However, Goldman Sachs believes this provides an "excellent backdrop" for investors that focus on idiosyncratic opportunities.

"The ratio of Index to Single stock options prices suggests idiosyncratic opportunities will continue over the next 6 months," wrote the bank.

Goldman sees a 26% probability of a 5% SPX up-move in the next month based on the macro and fundamental environment, although they highlight that SPX options are only pricing an 8% probability of a 5% up-move.

In addition, the bank says puts also appear undervalued, pricing in just a 15% probability of a 5% decline vs their model at 22%.

"The S&P 500 has risen 8% over the past three months and price targets have risen 7.5%," added Goldman. "Biotech stands out with the highest risk adjusted upside."

Elsewhere, the investment bank said that retail investor activity has declined, as evidenced by a significant fall in single stock options volumes.

They expect lower activity to embolden short sellers in companies with weak fundamentals, especially those where retail has historically been most active.