These 15 stocks have been on Goldman’s buy-rated conviction list for years

Published Sun, Oct 31 20217:30 PM EDTUpdated Mon, Nov 1 20216:39 AM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Goldman Sachs regularly updates its conviction list of stocks — which are buy rated by the bank and expected to outperform — but a number have performed well enough to stay there long-term. Here are 15 of Goldman's longest-serving conviction list stocks: Financial Hong Kong-listed insurance company AIA Group has been on Goldman's conviction list since March 2011, the longest of any stock currently listed on the bank's client website. "AIA is the only listed life insurer with pure exposure to the pan-Asia insurance market, and has a unique franchise in China," the bank's analysts stated in an investment thesis. They also like the stock for its exposure to high-end rather than mass-market consumers. Bank of America was added to Goldman's conviction list in 2015 after analysts started covering the stock the year prior. It offers "one of the best excess capital return stories" of its peers, the bank said in an Oct. 22 note, meaning it is more likely to return cash to shareholders in the form of buybacks. "Since the start of 2020 the top 7 banks have now added $2.1tn in deposits with JPM [JPMorgan] and BAC representing 65% of the growth," they added. Dutch banking group ING has been on Goldman's conviction list since 2018. "Our Buy rating on ING (on Europe CL) is predicated upon a strong capital position and capital return potential," the bank's analysts said. In August, ING announced it would pay dividends and shareholder distributions worth 3.6 billion euros ($4.19 billion), equivalent to 8% of its market capitalization. Credit card company Capital One was added to Goldman's conviction list in 2017. "[Management] is seeing some attractive origination opportunities as it sees almost all spend category rebounding with T & E [travel and entertainment] picking up," the analysts stated in an Oct. 4 research note. Retail and internet Gucci-owner Kering joined Goldman's conviction list in Sept. 2018. "We believe Kering is best placed among our luxury brand coverage to benefit from the industry's shift online, given that its brand portfolio has a high exposure to fashion and a younger demographic," the analysts wrote in April. While analysts described Gucci's third-quarter sales as disappointing, the group's other brands such as Saint Laurent and Balenciaga were "much stronger than expected," the bank said in an Oct. 19 note. Pan Pacific , Japan's largest discount store operator, was added to Goldman's conviction list in 2018, with analysts liking its "large number of items, price competitiveness, and treasure hunt experience." The company has exceeded initial earnings guidance for 10 years consecutively, the bank said in an Aug. 17 research note and Goldman also likes its plans to expand into mainland China. Chinese e-commerce giant Alibaba was added to Goldman's conviction list in 2016 and the bank has noted its multiple revenue streams and "continuous innovation." While China has suffered a downturn in its real estate market and the government has tightened rules – in April Alibaba was fined $2.8 billion as part of an anti-monopoly investigation – Goldman said regulation is "less onerous" for the company. "Alibaba is the one company in our coverage universe where the anti-trust investigation is complete and the Rmb18.2bn penalty paid." Healthcare Japanese drug company Santen Pharmaceutical has been on Goldman's conviction list since 2017. The bank likes the fact that it does not rely on "blockbuster" products and has growth potential in Asia, Europe and the U.S. It praised its first-quarter results for beating expectations in an Aug. 7 research note and said: "We view earnings as positive progress confirming the strength of Santen Pharmaceutical's business base in Japan and China." Goldman Sachs added Danish pharmaceutical firm Novo Nordisk to its conviction list in Jan. 2018. "We continue to see Novo well on its way into a new compounding cycle of high revenue growth," the bank said in an Aug. 17 note to investors. Drugs that treat obesity represent "one of the largest commercial opportunities," the analysts added. Healthcare equipment company Philips was added to Goldman's conviction list in 2017, and while it missed third-quarter consensus expectations, growth in orders was "strong," the bank said. Analysts said the stock has 29.2% potential upside to their 12-month price target as of Oct. 22. Oil, gas and chemicals Oil major BP has been on Goldman's conviction list since Aug. 2018 and the bank is 19% above consensus estimates in terms of earnings per share — a key measure of performance — for 2021. Goldman estimates that BP offers around 20% free cashflow yield (a ratio used to determine return on investment) for 2022, one of the highest in the sector, in an Aug 3 research note. "This is driven by cost and capital efficiency improvements … and one of the best pipelines … in the industry," the analysts stated. U.S. oil refiner Marathon Petroleum – on Goldman's conviction list since Oct 1, 2018 – is favored by the bank for its higher than average shareholder returns. "We view MPC's capital returns story as differentiated within Energy, with the company repurchasing an incremental $9 bn of stock through 2022," the bank's analysts stated in an Oct. 14 research note. Goldman reiterated its buy rating on paint company Akzo Nobel on Oct. 21, with the stock joining its conviction list in June 2018. "While we forecast raw material inflation to persist into 2022 at its current run rate, we see a highly favourable setup for Akzo from the point in time when raw material availability improves," the bank stated, adding that it is trading at a discount to U.S. peers. Conglomerates Hong Kong listed CK Hutchison , which operates across infrastructure, ports, telecoms and retail, was added to Goldman's conviction list in 2016. The company saw a "strong" recovery across all of its divisions, analysts stated in an Aug. 6 research note. "We believe CKH will exit this downturn with stronger earnings capabilities … and a stronger balance sheet," they added. Macau-based casino operator SJM Holdings was added to Goldman's conviction list in 2017, and the bank gave it a 88.7% potential upside to its 12-month price target on Oct. 25. While the bank noted uncertainties due to a Covid-19 outbreak over the summer, it set this should just be a "setback," in an Aug. 4 research note.

Brendan McDermid | Reuters