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The following is a list of the top high yield companies which Goldman Sachs is holding according to its most recent 13F filing with SEC.

Stock

Symbol

Shares Held - 09/30/2011

Dividend Yield

General Electric Co.

GE

70826061

3.80%

Pepsico Inc.

PEP

16881815

3.10%

JPMorgan Chase & Co.

JPM

28780734

3.00%

Procter & Gamble Co.

PG

12953058

3.10%

Merck & Co. Inc.

MRK

23979546

4.50%

Xilinx Inc.

XLNX

26713331

2.40%

Johnson & Johnson

JNJ

8817087

3.50%

JP Morgan and Merck provides the best risk reward among above stocks in my opinion. JPMorgan Chase is a stable bank with strong capital position, business mix diversity and a good dividend yield. Since 2004, JPM has strengthened its risk controls and business rationale. This has enabled it to post solid growth and excellent relative navigation of credit crunch. Going forward, the company continues to invest in growing its global franchise in spite of regulatory challenges. In addition to its global growth, there is a good scope for it to gain share from competitors with relatively weaker balance sheet.

I like Merck given the defensive nature of its business and its low valuations. The stock has outperformed S&P 500 (SPY) in the last 3 months gaining over 17%. I believe this outperformance will continue going forward as investors shift toward quality names with high yield and defensive business models.

Two stocks in the above list which I would avoid are GE and Pepsi. GE is likely to see headwinds from weak pricing, a difficult European environment and decelerating growth in emerging markets.

Pepsi’s slowing growth and market shares losses against its key rival Coca Cola (KO) makes it a risky stock. There are some expectations that company may announce some cost-cutting and restructuring measures early next year, and hence the stock might be show some strength going into 2012. However, I don’t see any likelihood of the stock outperforming. Given the kind of uncertain environment we are in, announcements have little impact unless accompanied by actual execution. When Coca-Cola faced similar problems in the past, it took it around 5 years of disciplined focus on brand building, innovation, bottler re-investment to improve trends. Clearly, it is not going to be an easy ride for Pepsi either.

Source: Goldman Sachs' Favorite High Yield Stocks