Goldman Sachs (GS) group manages over $100 billion in equities, primarily through its asset management subsidiary, Goldman Sachs Asset Management. The following is a list of top low PE stocks which Goldman Sachs is holding, according its latest 13F filing with SEC.
Devon Energy Corporation
Merck & Co., Inc.
Exxon Mobil Corporation
I beleive Devon Energy, Chevron, Merck and Microsoft are good long candidates among above stocks. However, I would avoid Exxon.
Devon Energy Corporation (DVN), together with its subsidiaries, engages in the acquisition, exploration, development and production of natural gas and oil in the United States and Canada. After asset sales and divestures last year, DVN has positioned itself as a pure play North American on-shore oil and natural liquid gas player. It received ~ $11 billion of proceeds from its divestures which it partly used to pare down its debt, stock buybacks and new lease acquisitions. I like the production visibility now inherent in the company's North American asset base after last year's strategic repositioning. I believe a focus on fewer assets will improve the company's operating and financial metrics in the long-term.
Chevron Corporation (CVX) engages in petroleum operations, chemicals operations, mining operations, power generation and energy services through its various subsidiaries. Chevron's stock has underperformed its peers since the news on Chevron's Brazilian oil spill last year. Given that the spill is estimated at 2,400 Bbls (well below 0.1% of Macondo), this underperformance clearly is an overreaction by the investors. I find Chevron's stock attractively valued, and expect it to outperform going forward.
Merck & Co. (MRK) is a global healthcare company. Merck delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health and consumer care products. It operates in four segments: Pharmaceutical, Animal Health, Consumer Care and Alliances. I also like Merck, given the defensive nature of its business and its low valuations (~10x forward PE). I believe the stock will outperform going forward, as investors realize the significant discount the company is trading at versus other large-cap pharma names.
Microsoft Corp. (MSFT) has seen a positive breakout on the upside from its last two-year trading range. It is currently trading at a forward P/E of 10x. I believe Microsoft is a good medium-term investment. Its cash cushion limits the downside, as well as enables it to make opportunistic acquisitions. In addition, Microsoft is also taking a lot of new initiatives, which can drive meaningful growth over the next few years.
Some of the major catalysts for the stock are the Windows 8 launch, Office 365 gaining traction, and a successful adoption of Nokia (NOK) WP7 phones. I think Microsoft offers attractive risk/rewards for investors looking to hold the stock for the next one year.
Exxon Mobil Corporation (XOM) is the only company in the above list on which I am not positive. 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 (CHK) and ConocoPhillips (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. I expect its stock to underperform in the near term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.