Goldman Sachs' Best Performing Top Buys

by: The Analyst Hub

Goldman Sachs group (NYSE:GS) manages over $100 bn in equities primarily through its asset management subsidiary Goldman Sachs Asset Management. The firm manages the Goldman Sachs series of funds apart from other series of mutual funds and caters to individuals and institutions.

Following is a brief snapshot stock market performance of its top 15 quarterly buys (as per 13F filing):



Shares Bought Last Quarter

Price Change (March 31- June 20)

Devon Energy Corporation




Google Inc








NetApp Inc




Cliffs Natural Resources Inc.




Boston Scientific Corporation




American Express Company




Valero Energy Corp




Praxair Inc




Hess Corporation




Hasbro Inc




CIT Group Inc




Scripps Networks Interactive Inc




Pioneer Natural Resources Co




BP Plc




The five best performing stocks among Goldman's top buys are American Express, British Petroleum, CIT Group, NetApp and Praxair. Here is a brief analysis of these stocks:

American Express is the leading global payments and travel player. The main products of the company are charge and credit payment cards, travel related services offered to consumers and business. The company also provides network services, merchant acquisition and processing for the company's network partners and its proprietary payments business. Geographically, the business is concentrated in US (70% of revenues) and Europe (10% of revenues).

Recommendation: Buy

All key factors important for a credit card business are looking positive for AXP. Charge Offs and 30 day+ delinquencies are showing a healthy improvement. American Express has the industry leading charge off rate of 3.2 %, improved from 6.3% a year ago. AXP's payment rate is also the highest of the primary issuers in the country. Moreover, despite having the highest payment rate, it also has a growing loan rate steadily contributing to the upswing of the business. Managed loans in May were up by 1.8% m-o-m compared to all other bank's average of 1% m-o-m. AXP's One Point initiative continues to attract incremental business. Fee based revenue streams are gathering momentum, tracking a $3bn target. According to consensus estimates, EPS is expected to move up from $3.84 in current year to $4.15 by Dec12.

British Petroleum Plc., based in UK, is one of the world's largest private sector integrated oil and gas companies. The company explores for and produces oil and natural gas, refines, markets and supplies petroleum products, generates solar energy, and manufacturers and market chemicals. The company has operations in 100 countries.

Recommendation: Buy

Though the GoM spill in 2010 and the proposed Russian Arctic exploration have weighed down on BP's shares this year, some of these circumstances are beginning to change or settle for BP. BP and Weatherford have reached an agreement to settle Weatherfords' (NYSE:WFT) claims. Following on the heels of the MOEX agreement, this suggests that there is momentum picking up in the settlement process. BP and its Russian partners (the AAR consortium) previous standoffs over TNK-BP's involvement in the Arctic joint exploration joint venture with Rosneft, seem to have come to an end, with TNK-BP returning to status quo. In addition, BP's operations in Iraq (via the Rumalia consortium) are progressing positively with regards to Rumaila, one of the world's rare super giant oil fields, expected to provide a huge opportunity for the company in future. The share is attractively undervalued and is a good buy target.

CIT Group, Inc. is a traditional commercial finance company founded in 1908. Core lending units include Corporate Finance, Trade Finance and Vendor Finance. The company also has a transportation leasing portfolio and a liquidating portfolio of student loans. Post its bankruptcy in 2009, the company continues to rely on unsecured debt, secured debt and a growing deposit franchise at its FDIC insured subsidiary.

Recommendation: Neutral

CIT group has recently undertaken transactions that are believed would lead to removal of the highly restrictive covenants on ‘uses of cash' and move the company towards a better debt structure. These transactions are namely 1) a $15.8 bn. exchange offer of its Series A secured debt into new Series C notes and 2) a consent solicitation to remove the covenants of the Series A notes with the same covenants of the Series C. If the consent and the exchange offers are successful, it would allow CIT greater flexibility on capital allocation. Management has also already started work on meeting the requirements for removal of NY Fed Written Agreement. A period of monitoring has also been stated. On the challenges front, though CIT has made progress post bankruptcy towards reducing its funding costs and thereby improve profitability, there is still along way to go before the required levels are achieved. We recommend a Neutral rating on the stock till further strengthening signals arrive.

NetApp Inc., a leading vendor of innovative storage and data management solutions that help organizations store, manage, protect, and retain their data. Headquartered in Sunnyvale, California, NetApp is a member of the NASDAQ-100 and ranks on the Fortune 1000.

Recommendation: Buy

NetApp's recent $480 mn acquisition of Engenio presents an opportunity to address the high bandwidth workloads and tap into the probable $ 5bn market opportunity present here in the long term. In addition, NetApp's sales mix has shifted from high cost FC drives in favour of lesser expensive SATA and SAS drives. This shift has helped NetApp gain market share as it has become an alternative for end users. It has also improved the product gross margin structure for NetApp overall. From an industry competition perspective, there has been no evidence that the consolidation of the storage industry by IBM (NYSE:IBM), HP (NYSE:HPQ) and Dell (NASDAQ:DELL) three years ago has slowed the market share gain momentum by NetApp. We expect continued scope for upside to its operating margins given its strong fundamentals in the core storage business.

Praxair is the largest industrial gas company in North and South America and the third largest in the world. It also supplies air separation systems and high performance surface coatings. The company is headquartered in Danbury, Connecticut.

Recommendation: Buy

Praxair's large project backlog has crossed $2.5 bn. and should move higher as the company is bidding on $5 bn. of projects in the next year. Its recent hydrogen contract with Valero represents a significant expansion of its Gulf Coast pipeline system. As part of this contract, the company will also extend its Louisiana pipeline 50 miles, which will give it the capability to become a significant pipeline competitor to Air Products (NYSE:APD) in the lower Mississippi River area. Pricing for Praxair is expected to improve further in emerging markets as well as North America, adding to the company's gross margins. Demand in Brazil, China, India and Central and Eastern Europe remains strong. In addition, the mix of oil globally is becoming heavier and more sour which would mean the demand for Hydrogen would grow multiple times, benefitting Praxair directly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.