Goldman Sachs Is Reducing Its Positions In These Top Stocks

 |  Includes: CMCSA, DG, MOS, OXY, PEP, SPLS, SWN
by: The Analyst Hub

Goldman Sachs group 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.

I discussed the Top Buys of Goldman Sachs in a previous article. In addition to buys, it is also interesting to have a look at top companies where Goldman is booking profit and selling its holdings. The following is a list of its top seven sells (market value wise) in the last quarter, as released in its most recent 13F filing with the SEC.



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in shares

Staples Inc.





Pepsico Inc.





Comcast Corporation





Southwestern Energy Co.





Dollar General Corporation





Mosaic Co.





Occidental Petroleum Corporation





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My favorite short candidate among above stocks is PepsiCo, Inc. PepsiCo, Inc. has invested almost $7 billion in acquisitions in last 24 months in its attempts to diversify beyond its core soft drinks business. This is more money than it had spent in total in the prior decade. This spend has come at a cost of ad expense which has badly under paced its #1 global competitor Coca-Cola (NYSE:KO).

Pepsi’s ad spend has been ~3% of sales vs. 8% for Coca-Cola. This has lead to market share losses in Pepsi’s core business and has hurt brand development and innovation. The acquisition deals haven’t yielded great results either as is evident from Pepsi’s EBIT margin decline (-240 bps) since 2008. On the other hand, Pepsi’s debt/EBITDA ratio has increased to 1.85x now from 0.65x three years ago.

Going forward, the weak fundamentals trends are expected to continue in the near term, given weak U.S. consumer spending, commodity cost pressures, market share losses and unfavorable y/y forex trends. Consensus estimates remain too high for Q4 and 2012 and analysts are assuming an underlying profit growth in Q4 2012, which is unrealistic.

The company is trading at comparable valuations with other consumer stocks like the Hershey Co. (HSY), Kraft Foods (KFT), Coca-Cola, Procter & Gamble (PG) and Colgate-Palmolive (CL) which are growing volume as fast and have better cash usage. I see a further downside in Pepsi as investors shift to better avenues.

The only upside risk I see to my short thesis is company’s business review, which it will discuss with analysts and stockholders early next year. The company has recently extended this review, which was earlier scheduled to be completed by December. In my opinion, this delay only signifies that fundamentals are becoming incrementally worse, and it is not easy to change the direction of the trend.

I won’t be worrying if the company comes up with any superficial discussion or optical value creators, like spin-offs, etc., after the review. However, any major cost cutting initiative will be a slight positive for the stock. I won’t change my negative thesis in the near term unless there are some major management changes in the company and to be honest, I don’t see much likelihood of that happening.

One stock where I don’t agree with Goldman and would instead like to go long on is Mosaic Co. I would recommend buying it despite of the broader macro concerns as I don't think 2008 like correction in fertilizer stocks is on cards.

During the last downturn in 2008, excess inventory in the supply chain coupled with anticipation of decline in fertilizer prices by farmers caused fertilizer producers and retailers to take a hit. However, the current situation is different. Due to the hit fertilizer retailers had taken in 2008, they were cautious this time and have not overstocked fertilizer inventories. Thus, supply chain remains very tight.

Further, grain prices corrected very sharply along with other commodities during the last downturn. Thus, farmers anticipated that fertilizer prices will come down as well. I don't see a similar commodity correction this time given the excess amount of money supply that has entered the system thanks to bailouts, quantitative easing and stimulus. In particular, when we talk of food grains where demand is inelastic, the trend is likely headed up in the mid-long term even if we consider a prolonged recession scenario.

Fertilizer prices are usually correlated with food prices and I believe fertilizer companies are the best bet in the long term to hedge one's portfolio against inflation in these recessionary times.

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