In the annals of investment banking, Goldman Sachs (NYSE: GS ) deserves a chapter all its own. Seldom has a company been so reviled, admired, envied, and even feared.
Love it or hate it, there's no denying that Goldman is a force to be reckoned with. When these guys predicted that oil would surge to $100 and beyond back in 2006, many Fools laughed. The laughing stopped when oil proceeded to do just that. And when Goldman followed up its $100 prediction with a call for $200 oil just two years later, not only did no one laugh -- investors actually bid up oil futures, helping Goldman to fulfill its own prophecy. (Almost.)
For good reasons or ill, this banker's opinions move markets -- so even if you don't agree with Goldman, it's worth keeping an eye on what it's up to.
Always bet on black ...
Just weeks after telling investors to buy shares of MGM Mirage (NYSE: MGM ) ahead of earnings, Goldman has taken a look at those earnings -- and concluded it made a little oopsie. MGM's $0.25-per-share "adjusted loss" spooked Goldman into ratcheting back its rating a couple of notches. And while the banker still thinks you should buy MGM, it's reduced the price target on these shares to $14.50.
... and put Baby in a corner
In more recent news, Goldman advised investors Monday to sell Minneapolis-based industrialist Graco. Corollary to Goldman's argument that U.S. housing stocks are bound to rise, the banker believes that Graco will do well going forward -- as a business. But unfortunately for shareholders, Goldman thinks Graco's stock has already priced in these prospects, and is due for a pullback.
Meanwhile, as Goldman's ardor for other names wanes, it's sticking with bullish bets on Goodyear Tire, priceline.com (NYSE: PCLN ) , and OfficeMax -- and even doubling down. Buy-rated already, Goldman has upped its price targets on each and every one of these companies in recent days.
And now ... for this week's big story:
Doh! Did we say "buy"? We really meant sell. Sell now. Our bad.
Sincerely,
Goldman Sachs
The most startling move Goldman made in recent days was Monday's abrupt about-face on Turkish cell-phone star Turkcell Iletisim Hizmetleri (NYSE: TKC ) (just "Turkcell" to its friends).
As you may recall, just two months ago, Goldman Sachs upgraded both Turkcell (which operates cell-phone services in Turkey and Ukraine) and Russian analog Vimpel-Communications (NYSE: VIP ) to "buy," citing a rapid recovery in regional consumer spending in 2010-2011 that, "will be the fastest in CEEMEA New Markets." Goldman argued that mobile communications stocks "provide attractive exposure to a recovery in consumer spending," while offering "little downside risk."
Considering the level of optimism embodied in Goldman's December take on things, a Fool can wonder what disaster, what unanticipated, earth-shattering change in circumstances, has turned Goldman's sunny optimism into a black cloud of despair. Have the Huns sacked Istanbul? Has an outbreak of shark attacks scared all the tourists out of Anatolia? Did the Finance Ministry invest all the foreign currency reserves in Electronic Arts stock ... pre-earnings?
No, friends. The situation's much, much worse than any of that. Turkcell cut its termination fee in half.
Horrors!
Yes, the termination fee. That dreaded "lock-in" requirement that AT&T (NYSE: T ) and Verizon (NYSE: VZ ) swear by, and that sets their U.S. customers to swearing, period. Turkcell has just made the customer-friendly move of loosening the financial handcuffs on its customers. For this capital offense, Goldman downgraded the stock all the way from "buy" to "sell."
What's wrong with being nice to customers, you ask? According to Goldman, it's just bad business. Give customers an inch, and they'll take their business to Turkcell competitors, worries the banker, which warns investors that "lower [termination fees] make it easier for small operators to compete with an incumbent."
I disagree.
20% does not equal 180 degrees
Firstly, I just don't see the increase in "mobility" among Turkcell's mobile customers as a life-or-death risk to the business. Why not? Well consider: Roughly 80% of Turkcell's customers are "prepaid" customers -- they're not locked into a contract at all. Worst case, a reduction in termination fees could increase churn among just 20% of Turkcell's customers. That would be bad, but I'm not sure it's quick-let's-reverse-our-buy-rating-and-sell-it-instead bad.
To the contrary, loosening the shackles on contract customers might be a good thing for Turkcell. When you consider that prepaid customers traditionally produce lower-margin revenues than postpaid (i.e., signed-to-a-contract) customers, I'd argue that anytime Turkcell converts a prepaid account to postpaid, it chalks up a win. And do you know a great way to entice skittish prepaid customers into signing a contract?
That's right: Make it a little easier for them to leave if they change their minds later on -- by reducing the termination fee.
Foolish takeaway
There are plenty of valid reasons to sell Turkcell, folks. But the fact that the company's treating its customers right -- and potentially reaping higher-margin revenues as a result -- is not one of them.
Long story short, I believe Goldman goofed on this one.
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