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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Goldman Sachs (NYSE: GS ) gained 1% today after Deutsche Bank upgraded the investment banking giant from "hold" to "buy".
So what: Along with the upgrade, analyst Matt O'Connor raised his price target to $181 (from $163), representing about 15% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's underperformance in recent months, O'Connor believes that Goldman's downside is limited given the low expectations now built into the valuation.
Now what: Deutsche sees Goldman's 2014 year-end book value at $166 per share and expects the stock to trade at 1.1 times that value. "From here, expectations seem low, 4Q should benefit from continued comp flexibility (we don't think GS used all of this in 3Q), likely better relative performance in both FICC and EQ trading and good completed M&A," noted Deutsche. "1Q should also benefit from higher seasonality." With Goldman's stock lagging several of its close peers year-to-date and currently trading at a slight premium to book value, I'd agree that the risk/reward trade-off looks attractive.
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