Goldman's Best Performing Buys: 2 Potential Longs, 1 To Avoid

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Includes: DIS, ESRX, JNPR, MHS, PBR, PVH, TCO, USO, WBA
by: Rash Menaria

Goldman Sachs will be filing its 13F for the quarter ended Dec. 31 in the next couple of weeks. Meanwhile it is interesting to have a look at some of its winning buys from the September quarter. These stocks have significantly outperformed S&P500's 13.35% gain since September end with most of them returning north of 20%.

Stock

Symbol

Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in shares

% change in share price since Sept. end

Walt Disney Co.

DIS

4056851

14675833

10618982

28.19%

Phillips-Van Heusen Corp.

PVH

2765310

6041316

3276006

22.60%

Petroleo Brasileiro

PBR

4589698

11028547

6438849

33.78%

United States Oil

USO

1591102

4928840

3337738

19.89%

Juniper Networks Inc.

JNPR

2941194

8417550

5476356

22.92%

Taubman Centers Inc.

TCO

147591

1988762

1841171

25.92%

Express Scripts Inc.

ESRX

658423

2744800

2086377

34.53%

Click to enlarge

Source: 13F filing

I believe Express Script and Philip-Van Heusen will continue their outperformance going forward. However, one stock in the above list where I would recommend booking profit after the recent run up is Walt Disney.

Express Scripts Inc. provides a range of Pharmacy Benefit Management services in North America. It offers healthcare management and administration services on behalf of its clients which include health maintenance organizations, health insurers, third party administrators, employers, union sponsored benefit plans, workers compensation plans and government health programs.

I am bullish on ESRX primarily due to highly accretive Express Scripts - Medco (NYSE:MHS) merger. While Federal Trade Commission is yet to approve the deal, recent indications suggest that things are going in right direction and the deal will most likely be closed in H1 2012. There is a considerable upside potential to its EPS estimates due to the inherent synergies from the merger, especially in the specialty pharmacy business. Also, ESRX is not getting adversely affected from its ongoing dispute with Walgreen (WAG). ESRX reported a 97% retention rate despite of Walgreen dispute.

Going forward, weak utilization trends are expected to reverse as increased availability of low cost generics is likely to address lower prescription volumes. Further, rapid growth in e-prescribing penetration and robust biological pipelines should continue to drive revenues higher. The fundamentals of the base PBM business seems positive and ESRX is in a comfortable position to capitalize on opportunities around generic drug launches, higher electronic prescribing utilization and a growing specialty market as pricing remains competitive. I believe it's a good medium term buy.

PVH Corp is an American apparel company. It designs and markets branded shirts, neckwear, sportswear, footwear and other related products worldwide. It owns brands such as Tommy Hilfiger, Calvin Klein, Van Heusen, Izod and Arrow. In addition to its own brands it licenses brands such as Geoffrey Beene, BCBG Max Azria, Chaps, Sean John and Kenneth Cole New York.

Recently, PVH raised Q4 2011 EPS guidance by $0.05 to $1.08-1.10 due to strength in their key brands, Tommy Hilfiger and Calvin Klein. Q4 sales remained strong with retail comps of Calvin Klein up by 15% and Tommy Hilfiger up by 12% in North America. European trends also show a similar growth with wholesale orders for spring and pre-fall up by 15%.

Going forward, strong unique brands are likely to outperform other basic merchandise offerings and PVH is well positioned to capitalize in such an environment. Further, management's 2012 guidance is likely conservative as historically they have under-promised and over-delivered.

In addition to the fundamental trends going in the right direction, the company's balance sheet looks strong with a favorable cash position. With the retiring of $450 million debt in 2011 and plans for repaying $300 million in 2012, PVH is in a good position to scout for accretive acquisitions opportunities which might be available at attractive valuations given the macro uncertainty.

Trading at a forward PE of ~ 12x PVH looks attractive especially given strength and growth opportunity of its brands, geographically diverse business model and a multi-channel approach to distribution.

One stock in the above list where I will recommend booking profits is The Walt Disney Company. The Walt Disney Company is one of the largest media conglomerates in the world. Its key assets include Theme Parks, ABC TV Network, ESPN and other Cable Networks, Film Studios such as Disney, Buena Vista and Pixar, Consumer Products and Interactive Media.

As the global economic uncertainties continue to prevail, advertising revenues for DIS's Media segment is expected to be under pressure. ESPN ratings was down by 15% in 4Q, following a 13% decline in 3Q. With the new entrant, NBC sports, competing for sports rights, the costs are expected to increase. I believe that this ratings weakness and moderated demand could weigh on its revenue growth in 2012.

2012 is likely to be a lackluster year for filmed entertainment as there are fewer movies slated to be released this year than in 2011. Tepid traveling and lodging trends indicate a moderate growth for Theme Parks business.

Disney's shares have returned 28% in the last 3months compared to +13% for S&P 500 and +18% for its peers. Given this significant up move in the recent past, I believe that its risk/reward proposition is unattractive at current levels.

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