Goldman Sachs Top Buys: 4 Long Ideas, 1 To Avoid

| About: Goldman Sachs (GS)

The following is a list of top stocks in which Goldman Sachs (NYSE:GS) is increasing its positions, according its latest 13F filing with SEC.



Shares Bought Last Quarter

Pfizer Inc.



Abbott Laboratories



Sirius XM Radio Inc



Groupon Inc



Exxon Mobil Corporation



Pfizer Inc (NYSE:PFE) is a research-based, global biopharmaceutical company. Pfizer's stock price has seen a good 20% appreciation in the last six months, and I expect it to continue its upward trend going forward. I am bullish on Pfizer because of the management's commitment to enhancing shareholder value through dividend and buybacks, as also due to the company's improving product pipeline. Pfizer increased its quarterly dividend by 10% to $0.22, from $0.20, in Q4, and authorized an additional $10 billion share repurchase program with $5 billion in repo expected for 2012.

Pfizer is likely to generate ~$20B in free cash flow in 2012, so even with the dividend of ~$6.5B and share buyback of $5B, there is still plenty of room for inorganic growth through M&A. In addition, Pfizer is entering an interesting new product launch cycle with four $1 bn-plus opportunities, including Xalkori, Eliquis, tofacitinib, and Prevnar 13 adult, which could provide organic growth catalysts for the company.

Abbott Laboratories (NYSE:ABT) is a global diversified pharmaceutical and healthcare product company. It engages in the discovery, development, manufacture and sale of healthcare products worldwide. The company's drug portfolio includes Humira, Norvir, Depakote, and Synthroid. Abbott is also a leading player in nutritional supplements and diagnostic systems.

I like Abbott because of the announced spin-off of its pharmaceutical business. This move is likely to create more value for shareholders through focused execution and better use of capital. The spin-off is expected by the end of this year.

From the fundamental perspective too, Abbott's business is seeing good trends. Abbott reported strong Q4 2011 results ahead of the Street's estimates, and provided a healthy 2012 guidance, driven by organic growth and higher gross margins. Going forward, Abbott is expected to continue delivering solid earnings results, as Humira is likely to continue to post strong sales, with market gains in underpenetrated markets and Abbott's recent global expansion in emerging markets. Abbott management also noted that the company will resume share buybacks in 2012, hinting that its stock is currently undervalued.

Siri XM Radio Inc (NASDAQ:SIRI) is an excellent secular growth story for the next several years. Key drivers for its subscriber growth include improving new car sales and growth in the base of used cars with satellite radios installed. The company grew its net subscriber base by 1.7 million last year. For this year, the company has guided to 1.3 million net subscriber additions. However, this guidance will likely prove conservative if February new car sales pace is sustained.

Siri's profitability is likely to outpace its revenue growth, given its ability to pass on rate hikes to a loyal subscriber base, and savings from a GM contract reset in late 2013. In addition, any strategic changes in Liberty Media's 40% stakeholding in Sirius XM is likely to act as a potential catalyst for the stock and will further unlock value for SIRI shareholders.

Groupon Inc (NASDAQ:GRPN) is a good play on migration of local commerce to online channels and growth in usage of mobile and apps. Groupon is a category leader in the online daily deal and social commerce market. A lot of investors are negative on Groupon, citing reasons of increasing competition in the local deals space. But the fact remains that group on has defended its position really well and LivingSocial, its nearest competitor, is one-sixth of its size.

I believe investor concerns are misplaced and Groupon's business is more defensive than what most investors think. Some of the barriers to entry in the business include a large sales force requirement, merchant relationships, subscriber base, accumulated data and technology. Groupon's proven merchant ROI and ability to continually save consumers money adds to its brand. Going forward, I believe some of the concerns on Groupon's business will ease as more of its competitors leave the space, and Groupon's financials improve as it sees margin expansion due to decreased marketing spend and SG&A leverage.

One company in the above list about which I am not too positive is Exxon Mobil Corporation (NYSE:XOM). Exxon's exposure to natural gas is likely to result in the company underperforming the broader oil & gas sector. Exxon is the world's largest gas producer. Despite a bleak natural gas outlook in the U.S., XOM continues to be bullish on natural gas demand, as is evident from its production increase in Q4 2011, and also by its most recent acquisition of XTO Energy, a natural gas company.

At a time when its competitors Chesapeake (NYSE:CHK) and ConocoPhillips (NYSE:COP) have announced natural gas drilling cuts, XOM has continued to look for growth in natural gas production. While this move clearly points to the company's approach towards developing a long-term resource, it is expected to affect the near-term earnings potential.

Given the fact that XOM trades at a premium to its peers and its near-term headwinds, I expect the stock to see a correction in the near term (Why You Should Avoid Exxon Despite Surging Oil Prices).

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