Love it or hate it, there's no denying 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 remove markets – so even if you don't agree with Goldman, it's worth keeping an eye on what it's up to.
Bankers in love
Like teens experiencing their first high-school crush, there's nothing as cute as bankers in love. And if it's love stories you like, then Goldman's got a million of 'em for you this week, as the biggest name in investment banking pledges its troth to a whole host of mini-bankers.
On Friday, Goldman made positive noises about several of the nation's regional banks when it upgraded the sector to "neutral," and highlighted SunTrust
Contrariwise, even as Goldman dropped rival i-banker Piper Jaffray and credit card czar Capital One
First a sugar high -- and then the crash
Not all stocks are feeling the Goldman love this week, however. In fact, even as Goldman appears bullish on America, it placed a lot of emphasis on international growth in the course of downgrading Hershey
By now, you know at least the bare bones of this story. Kraft
But while Kraft arguably overpaid for Cadbury, and we can just-as-arguably commend Hershey for refusing to overpay to beat it, Goldman believes the failure to wed puts the kibosh on Hershey's growth plans. Citing a failure to broaden its emerging markets exposure on the one hand, and fearing a bigger Kraft-Cadbury will force Hershey to advertise more to compete, Goldman predicts Hershey will grow earnings only 5% earnings this year -- and calls the stock a "conviction sell."
Even more obvious overvaluation
On the surface, Goldman's comments are so obvious as to hardly merit comment. I mean, 5% growth isn't that far off from the 6% growth that most analysts already predict for Hershey this year -- or the 5.8% long-term growth rate they posit for the next five years. When you compare these numbers to Hershey's rich 22 P/E, it's hard to see why anyone would argue that Hershey is anything other than an out-and-out sell.
That's why I suspect it's the dicta contained in Goldman's analysis that hold the real news here. After grumbling over growth, and complaining about competition, Goldman goes on to note that Hershey also faces "higher cocoa, sugar, and dairy prices" -- each of which will add to costs; each of which will hinder profit growth.
And something a little less obvious
In my humble opinion, these are the three key factors that we should be focusing on. Hershey's overvaluation is obvious. So, too, the fact that emerging markets grow faster than developed markets. No news there, on either point.
More important, to my Foolish eye, are Goldman's musings about the high cost of sugar, which will affect a whole range of sugary snacks makers. Such a trend would also seem destined to benefit companies like Archer-Daniels-Midland
Goldman's view of dairy costs are also key -- bad news for Hershey, but I'd argue even worse news for Kraft. On the Cadbury side of things, Kraft faces all of the same commodity costs that Goldman sees dogging Hershey. More importantly ... if I recall correctly, America spells cheese K-R-A-F-T. Rising dairy prices, therefore, could bite Kraft in the balance sheet.
Add rising commodity costs to an overpriced acquisition, and I suspect Hershey isn't the only stock deserving a place on Goldman's sell list. They could be getting company, real soon.
Fool contributor Rich Smith does not own shares of any company named above, but Berkshire Hathaway is a Motley Fool Inside Value recommendation, a Stock Advisor pick, and the Fool owns shares of Berkshire Hathaway. The Fool has a disclosure policy.