By: Aubrey Tabuga
Goldman Sachs Group Inc. (NYSE:GS), one of the premier investment banks in the world, had a massive $250 billion under its management in the end of the third quarter based on data compiled by whalewisdom.com. The company had profited from the collapse in subprime mortgage bonds in the summer of 2007. In the latest quarter, Goldman has beaten analysts' expectations by a significant margin. In particular, it has earned $2.85 per share, much higher than the expectation of $2.19.
The mega-investment manager had sold 406 stocks out and purchased 410 new in the end of September. Its biggest buys are Apple (NASDAQ:AAPL), International Business Machines Corp. (NYSE:IBM), Intel Corporation (NASDAQ:INTC), Mondelez International, Inc. (NASDAQ:MDLZ), and American International Group (NYSE:AIG).
% of Portfolio
Stock Performance (YTD)
International Business Machines Corp
Mondelez International, Inc.
American International Group
Sources: whalewisdom.com & finviz.com
Apple Inc (AAPL) is one of GS' most favored stocks. The fund manager notably raised its position in the company by 1.687 million shares, bringing the total holdings to one that is worth over $5 billion. The Apple holding is the fund manager's top 2 in the third quarter. This is by far the biggest position GS have had in Apple in the last couple of years.
Apple Inc. is a worldwide leader in the development, manufacture, and marketing of mobile communication and media devices, portable music players, and personal computing products. Apple is the maker of iPhone and iPad. The company has recently settled a trademark dispute with a local firm in China regarding its iPad. Since then, shipments to China have nearly doubled. This will leave a positive mark to the stock's attractiveness knowing the potential growth it can generate from a vast China market.
Apple is a massive growth generator. Its EPS is likely to grow at an annual rate of 20.86% in the long term. Sales in the past years have tremendously swelled by 44.81% per year. Its profitability is truly impressive with a margin of 26.67%. Although the stock price is dismally sliding down, its improvement is still remarkable at 31.45% from the previous year.
International Business Machines Corp.
Goldman Sachs increased its holdings in IBM again, this time by 78% from its holdings in the previous quarter. This is the fourth consecutive quarter where the giant fund manager bought additional shares of the company. IBM constituted 0.48% of GS' total portfolio.
IBM is a worldwide leader in IT product and services. The company has recently unveiled its new IBM Engineering Lifecycle Manager, which aims to help organizations bring intelligence to the products and applications that people use every day. The new software reduces cost by simplifying processes. The company, however, is facing a lawsuit filed by Avantor Performance Materials, a producer of chemicals for pharmaceutical products, over the implementation of software that had caused a disaster for the chemicals firm.
IBM offers its investors a promising growth in terms of earnings. The EPS' long term annual growth estimate is 9.92%. Its profit margin is a double digit 15.53%. The stock price has fallen in the quarter, but slightly inched up from the previous year. Also, investors find IBM attractive because of their excellent record in dividend payment.
Goldman Sachs has been increasing its investments in Intel (INTC) in these last 2 quarters. The latest was twice that in the previous which had brought GS' holdings to $852 million, the highest in at least 9 quarters.
Intel Corporation is a world leader in integrated digital technology platforms. The Santa Clara-based computing giant has recently chosen eXalt's platform to empower its channel partners. The objective is for these partners to configure easily and sell the Intel Server Block Solutions internationally. Reports say that the company has invested in the startup 10gen that is developing the MongoDB database.
Intel's stock is in for a deep dive. It has already lost 13.87% from the previous year. Expectations have it that the earnings will likely contract next year. However, things look better if one goes a little bit farther into the future as the estimated annual growth rate in the long term is 10.61% on the average. After all, Intel is still a highly profitable firm with a margin of 22.13%. Like IBM, Intel's attractiveness lies on its ability to pay increasing dividends.
Mondelez International, Inc.
Goldman tripled its position in the latest quarter and brought its ownership to 15.467 million shares. The investment bank had also increased its holdings by 41% in the previous quarter. Mondelez International, Inc. (MDLZ), formerly Kraft Foods, is a leading food manufacturer and marketer. Its brands include Oreo, Nabisco, Cadbury, and Tang.
The company primarily caters the international market. About 35% of the revenue comes from European market while about 46% comes from developing markets. Approximately 20% still comes from the US snack business. Mondelez's change in name also paved the way for independence, which analysts deemed as an opportunity to grow its core operations. Its focus on high-growth emerging markets makes it quite an attractive addition to the portfolio.
The food company has vast potential for earnings growth. EPS is likely to grow by 11.35% each year for the next 5 years. Although the stock price is slightly going on a slide, it is still several percentages higher than that from a year ago. The company is likewise an excellent source of stable dividend incomes for investors.
American International Group
Goldman Sachs bought 7.9 million of American International Group (AIG) shares by the end of September, more than double its holdings in the second quarter. The insurance provider constituted 0.19% of the fund manager's total portfolio. Except for the previous quarter, GS has been augmenting its position since the first quarter of 2011. AIG is a New York-based insurance provider. TheStreet Ratings recently reiterated a hold for the company which got a score of C. AIG and others are in talks with the PICC Group on becoming key investors in the latter's Hong Kong IPO.
The company's recent earnings performance is rather dismal. The EPS estimate for next year is 3.50, way lower than the current one at 14.41. However, the future prospects are encouraging with the long term annual growth estimate of 14.73%. The stock price has also shown improvement compared to that of a year ago. The company is highly profitable with a margin of 38.83%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.