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 Goldman predicted in 2006 that oil would surge past $100, investors laughed. The laughing stopped when oil proceeded to do just that. And when Goldman then predicted $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.) Simply put, 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.
In hopes of helping you with this, what follows is a quick rundown of Goldman's highest-profile moves so far this month, courtesy of the ratings trackers at StreetInsider.com.
Coca-Cola (NYSE: KO)
Goldman added Coke to its "conviction buy" list following the stock's S&P downgrade-driven selloff last week. Calling Coke "the ideal stock to own in a slower-growth" economy, Goldman cited the company's 10% earnings growth rate, "market share momentum," and forward earnings P/E ratio of 16 as reasons for optimism. Goldman sees Coke hitting $77 per share within the year, a 13% gain from today's levels.
McDonald's (NYSE: MCD)
Continuing the "bad for your health, great for your portfolio" theme, Goldman also raised the Golden Arches to its highest rating. Once again, market share gains and a cheapish stock price are keys to Goldman's buy-thesis. The analyst also argues that there's "little statistical correlation between MCD's SSS growth and the macroeconomic backdrop." Translation: It doesn't matter what the economy does; McDonald's is only going up. Goldman's looking for $96 per share on this one, or about an 11% gain.
Pfizer (NYSE: PFE)
"Would you like cholesterol medication with that?" After praising the virtues of junk food, Goldman takes the next logical step and tells investors to buy the cure for junk food: Lipitor maker Pfizer. According to the analyst, it's the potential for "spinoffs/divestitures" that makes Pfizer a "conviction buy." Alternatively, Goldman argues that if Pfizer remains intact, a combination of dividends and share buybacks can still reward investors. With "significant and building cash balances," Goldman sees Pfizer as having many levers it can pull to create value. Target price: $22 per share.
Exxon Mobil (NYSE: XOM)
America runs on junk food … and oil. Next on Goldman's shopping list is Exxon Mobil, which the analyst calls a "classically defensive super-major." As you've probably heard, Exxon recently lost the title of the market's biggest stock to Apple. But Goldman doesn't see that lasting long. Even if Google's (Nasdaq: GOOG) move into cell-phone manufacturing doesn't manage to pull Apple down, Exxon's dominance in the world's most important commodity will. The analyst who predicted "$100 oil" before it was cool says Exxon is poised for a run to near$100 itself and offers the chance for a 35% profit to investors who buy today.
Western Refining (NYSE: WNR)
And last but not least, Goldman echoed my own thoughts on Western Refining. Last week, I told you why I thought this oil refiner's massive cash generation made the stock a bargain at a price-to-free cash flow ratio of less than 4. A few days later, Goldman suggested that a more appropriate price on the stock is $22 per share, which would give investors today a 24% profit on their investment -- but even that might be conservative. Goldman's posited price would lift Western Refining to a $2 billion market cap, but the P/FCF on the stock wouldn't even hit 6.0.
There you have it, folks. Five of Goldman's favorite ideas. Five conservative, cheap ways to invest in a market selloff that's left us quite a ways below the highs of last month. Which of the five do you think will outperform the market?
