Goldman Sachs Updates Its Conviction Buy List

We used to cover Goldman Sachs' Conviction Buy & Sell lists pretty frequently on the blog, but then we became so inundated with hedge fund tracking that we never had the time. But now, with the 4th quarter 2008 hedge fund portfolio tracking behind us, we've got some spare time before the Q1 2009 portfolios are released and we're swamped again.

Here's the caveat with this coverage: We don't normally place a ton of weight on individual analyst calls and upgrades/downgrades. That said, we are very cognizant that Goldman often moves markets and has to at least be monitored. As such, we've covered Goldman Sachs' (GS) list because for whatever reason, everyone loves a "V.I.P." or "Best of" and "Worst of" list. So, Goldman's lists are essentially the cream of the crop in either direction. If Goldman adds it to its Conviction Buy List, then it loves it, and if the bank adds it to the Conviction Sell List, it (at least for the moment) hates it. That much is self-explanatory but we just wanted to give a preface for those unaware. Now, to the changes:

Conviction Buy List

The bulk of the recent changes were made to Goldman's Conviction Buy List. As the month of May begins, Goldman has decided to ambush everyone with a ton of changes.

Here are the names it has just recently added to its Conviction Buy List: Liz Claiborne (LIZ), Massey Energy (MEE), Joy Global (JOYG), and Research in Motion (RIMM).

And, here are the names that Goldman has removed from its Conviction Buy List: Mastercard (MA).

The addition of Claiborne to the list is interesting given that Goldman has doubled its price target on the stock from $3.30 to $7.20. Is it just us, or did the economy NOT get 100% better overnight? Apparently all the Wall Street wives and girlfriends who had cut back on their purchases of make-up are rampantly buying again. Previously, Claiborne was rated as neutral but now graces Goldman's Conviction Buy List. This seems to stick with the market theme of the past few months of what we crassly call "sh*t rallies." Essentially, all the horribly beaten down stocks with poor fundamentals and poor outlooks are rallying for hardly any reason other than that shares are oversold and investors are hopeful that the economy will rebound a.s.a.p.

Goldman removed Mastercard from the Conviction Buy List, but still retains a 'buy' rating on the name. More than anything, this is due to a combination of the recent earnings release, valuation, and taking some profits off the table after the rally. Interestingly enough, Mastercard (and Visa (V) too) are holdings currently present in our Market Folly portfolio that we created based on hedge fund cloning. Our portfolio has seen a total return of over 190% since mid-2002 and has annualized returns of 17%. Year to date for 2009, our portfolio is outperforming the S&P by a handsomely wide margin, and Mastercard and Visa are certainly to thank for part of that.

We don't have a problem with Goldman removing MA from the Buy List, as we recently sold some of our Visa (V) into the earnings release pop and as shares have rallied over the past few months. We post all of our portfolio updates in our Twitter stream, so definitely follow us on Twitter if you're not already doing so. Again, MA is still rated a buy, but no longer graces the Conviction List.

Massey Energy was also added to the Conviction Buy List as Goldman sees shares more than doubling from their previous $12 price target to a new target of $26. Massey was previously rated as Neutral and now graces the Buy List. And, as we'll touch on below, this upgrade was a part of a sector-wide coal upgrade on Goldman's part. But, it definitely appears as if Massey is the bank's favorite at the moment.

Sticking to the energy and raw material meme, we see that Goldman also added Joy Global (JOYG) to its Conviction Buy List. Joy provides the equipment and servicing related to the mining industry and since Goldman is bullish on the Coal industry, the banks is projecting somewhat of a trickle-down effect where Joy will see more action as the Coal companies ramp up. Goldman had just recently upgraded Joy from neutral to buy back in late April. But now it has essentially upgraded Joy again by adding it to its Conviction List. Also, interestingly enough, we had noted that in Q4 2008, numerous hedge funds had sold out of Joy Global. We'll have to see if they have reversed course when they release their Q1 '09 holdings.

Last, but not least, Goldman also added Research in Motion to the list and has only mildly adjusted the price target to $85, up from $82. We're not quite sure what exactly has changed or what merited this move, but oh well. We've noted that previously RIMM was hedge fund Maverick Capital's 9th largest holding.

Also, we wanted to touch a major move by Goldman that undoubtedly help shake up the Coal industry on Monday (5/4/09). We couldn't help but notice that coal stocks were all rallying hard, and Goldman is partially responsible for this as it upgraded the entire American coal sector to 'Attractive' from 'Neutral.' And, as we mentioned above, Massey Energy in particular was even added to the Conviction Buy List. Stocks in the specific sector who were all seeing action include: Patriot Coal (PCX), Arch Coal (ACI), Consol Energy (CNX), Alpha Natural Resources (ANR), Peabody Energy (BTU), and Foundation Coal (FCL) among others.

Other Recent Moves

The names mentioned above all were added/subtracted from the list here in the first few days of May. But, in fairness of playing catch-up, we also wanted to quickly list which names Goldman also added/subtracted from its Conviction Lists at the end of April and on the 1st of May.

Further additions to the Conviction Buy List: Brinker (EAT), Activision (ATVI), Och-Ziff (OZM), & CVS Caremark (CVS).

Further removals from the Conviction Buy List: DR Horton (DHI) and ITT (ITT).

So, there you have it. You are now all caught up with Goldman Sachs' Conviction Buy & Sell Lists. (That is, until it releases the next batch of changes). From here on out we'll try and update these lists, provided that our hedge fund tracking doesn't get in the way.

Comments

[Emerald:]

Should Goldman also issue their trading positions in the same stocks when they add them to the Conviction Buy list? Did they establish a trading position in these stocks a month or two ago and now are trying to lure retail and mutual funds back into these stocks as they sell from their own book? Beware sell-side firms suggesting you buy when the horse is trotting out of the barn and the market has already run up.

May 06 11:49 AM

[David Van K...:]

I mistook the title of the article. I thought it was going to be about Goldman executives (and ex-executives) who have been convicted of something or other. That'd be more interesting.

May 06 12:57 PM

[AndrewBaker:]

Research in Motion is a good stock, but I'll wait: the only stock tips you'll get at this stage of play are ones where the move's already been made, or the tipper wants to offload.

May 06 03:58 PM

[Market Folly:]

good point Andrew, the quick money is always already made on these. Was just presenting them for those who like to get up to date view points over the long-term prospects. Analyst moves can swing a stock on that day and it's always best to pick up the shares on a pullback if they interest you.. good point.

May 06 07:53 PM

[Market Folly:]

Emerald, yes such disclosures would be forward progress in an industry in increasing need of them. I'd imagine that all of this crisis has sparked a ton of change coming in the forms of regulation and disclosures. Unfortunately, I'm not sure if trading disclosures will be at the front of the list. Sigh. Yet another thing to address in the future.

May 06 07:55 PM

[User 401742:]

These are all names to look at again when we get a 50% retracement in the market

May 07 12:26 AM

[ValueInvestor:]

Call me a skeptic, but I wouldn't trust anything GS says. I wouldn't doubt for a second they're talking their book. Everything Emerald said is likely.

May 11 03:11 PM

[Jake2:]

Market Folly: Just another sales pitch. Caveat emptor!

May 13 01:15 AM

[kata:]

Does anyone know if the conviction buylist has performed better than the average bear?

May 17 04:19 PM

[dcb:]

I have lost enough money listening to goldmans advice to avoid it now. It usually means at least a two day fall. I can say with certainty I bought some euro bonds at their advice at the top of the Jan peak. then their prop trading desk ran us into the march lows.

Every bank's advice I have seen so far if you watch technical indicators isn't a time you'd want to initiate a trade.

I recall Morgan's all clear signal at the high of the bounce in october or november by their most famous respected analyist.

I have always wondered why the sites that publish their advice don't give some kind of rating or scorecard. I make a specific suggstion to bloomberg.com that when they publish the advice from some firm that firm should have a rating regarding time the history of their accuracy and timing.

Also in that company an analyst can say something and it doesn't mean the company will trade it. (they may even short it) after all their are those strong firewalls there to protect us.

You think their traders lost a fortune staying in oil because their analyist said it was going to 200, or do yo think they made money shorting.

May 17 06:17 PM

[capital pains:]

GS has been a disaster with their supposed "conviction list" ..Goldman and the US Attorney General would serve a more useful purpose if they published a "conviction list" of all the criminals convicted in the massive fraud perpetrated upon our financial system. Unfortunately, the list would be blank.!
GS and every other banker/broker,investment house are useless miscreants only addressing their very own agendas. Warren Buffet may be interested in GS but we who have lost money with the "king of thieves" firm, couldn't care less about the GS list .

May 17 08:03 PM

[RJK1:]

I am frankly suprised that they didn't add Barney Frank and most of the other 430 some odd members of the House and 100 members of the Senate to their list. I guess that would be stating the obvious.
Oh, my mistake, ........that would be their Bought and unlikely to be convicted list.

May 19 03:32 PM