Some of Goldman Sachs' most important stock picks last quarter have fallen flat.
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But several of its so-called conviction-buy recommendations from last year — many made in the dark days of the stock-market rout before the rebound that began in March — have outperformed stock-market benchmarks many times over. Some may even rise further, according to Goldman's analysts.
Stocks on Goldman's "conviction buy" list "represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return," according to the New York-based bank.
Some of Goldman's second-quarter "conviction buy" recommendations are losing investors money as investors fear a double-dip recession, stagnant jobs market and a ballooning deficit.
The following three stocks were added to Goldman's "conviction buy" list in 2009. The bank continues to recommend owning the shares.
3. JPMorgan Chase last week posted second-quarter earnings of $1.09 a share, dwarfing the consensus estimate of 70 cents. The global bank's results included a 36-cent benefit from a reduction in loan-loss reserves and a 14-cent charge related to a U.K. bonus tax.
Goldman's Call: Goldman added JPMorgan Chase to its "conviction buy" list Jan. 26, 2009, and currently has a 12-month stock-price target of $54. Analyst Richard Ramsden wrote in a July 15 research note that JPMorgan's credit was "improving faster than anticipated" in the second quarter, although he noted that "pre-provision earnings were down 10% with trading revenues down by a third and net interest income under pressure."
Stock Performance Since Recommendation: 58.2% (July 21 close)
S&P 500 Return Since Recommendation: 28.6%
Potential Return: Based on Ramsden's price target of $54, JPMorgan Chase shares could still reward investors with a 39% gain.
2. Cigna will report second-quarter results Aug. 5, with analysts predicting a profit of $1.01 a share on revenue of $5.26 billion. In May, the health-care company reaffirmed its full-year earnings guidance range of $3.75 to $4.15 a share.
Goldman's Call: Cigna was added to Goldman's "conviction buy" list on Jan. 28, 2009. Analyst Matthew Borsch continues to recommend the stock and has a six-month, $42 price target. Borsch contends that Cigna "remains the least exposed to health-reform downside risks." He adds that he sees the stock "as the best risk-reward among core names, particularly given its sector-relative valuation discount."
Stock Performance Since Recommendation: 97.7% (July 21 close)
S&P 500 Return Since Recommendation: 28.6%
Potential Return: Based on Borsch's $42 price target, investors could realize 38% upside over the next six months
1. Ford Motor will report second-quarter earnings before the start of trading Friday, and analysts are forecasting profit of 40 cents a share on revenue of $29.79 billion. That would reverse a year-earlier loss but would be down slightly from the carmaker's first-quarter profit. Ford has beaten the Thomson Reuters average earnings estimate in each of the past five quarters.
Goldman's Call: The firm added Ford to its "conviction buy" list April 21, 2009. After Goldman cut its 2010 U.S. auto sales forecast, analyst Patrick Archambault trimmed his six-month price target to $14 from $16. After the automaker retired $4 billion in debt at the end of June, Archambault said the move was positive as it is "materially accretive to earnings," and it sends "a strong signal indicating an improving cash-flow outlook."
Stock Performance Since Recommendation: 188.8% (July 21 close)
S&P 500 Return Since Recommendation: 23%
Potential Return: Although Archambault reduced his stock-price target to $14, that's still 23% higher than where the stock currently trades.
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Disclosures:
Disclosure information was not available for Holmes or his company.