Many Key Changes to Goldman Sachs Conviction Buy List for 2014

2014 is upon us, and that means that investors have started positioning their portfolios for the year ahead. 24/7 Wall St. reviews many analyst calls each day in order to find the hidden gems of stocks to buy and stocks to sell. If one firm can create interest around a stock, it is Goldman Sachs. Investors have followed its Conviction Buy List for years, but 24/7 Wall St. has tracked many major changes to this prized list in the final weeks of 2013.

Investors need to be aware that many “Conviction Buy” upgrades are simply raised from an official Buy rating at the time. Some stocks are actually raised from Neutral to the Conviction Buy List, and this is when investors usually pay close attention.

One other issue to consider is that Goldman Sachs only targets institutional investors and very high net worth individuals. In short, this is what the wealthy and well-to-do are being told to do with their money.

When investors see Goldman Sachs remove a stock from the Conviction Buy list, they often lighten up on the stock, even if the firm still maintains an official Buy rating.

Investors seem to be universally positive for stocks for 2014. It has already been decided that the QE tapering would begin in January, we are getting a new Fed chairman and GDP estimates are ticking higher. It now even seems likely that Europe will recover along with the rest of the world in 2014.

Goldman Sachs issued an upside call to 1,900 for the S&P 500 in 2014, but they also believe a 10% correction is likely to occur before that comes about. The numerous changes to the Conviction Buy List seem to support this outlook, but we would caution that many investors are hoping for lower prices to get into long-term stocks again.

Some of the top stocks on the Conviction Buy List have been removed and other new names of highly visible companies have been added. We have not shown the companies deleted from the Conviction Buy list in most cases, and most international stocks not listed in the United States were generally left off as well.

AbbVie Inc. (NYSE: ABBV) was already at Buy but was raised to the Conviction Buy List at Goldman Sachs on December 5. The firm’s price target for this pharma stock is $60, versus about $53 at year-end. The highest price target now is up at $67, but we would point out that Morgan Stanley recently downgraded it to Equal Weight from Overweight. Pfizer Inc. (NYSE: PFE) was removed from the list to make room, but Goldman Sachs kept its Buy rating and $35 price target on Pfizer.

Atwood Oceanics Inc. (NYSE: ATW) was added to the Conviction Buy list on December 16, after having been raised from Neutral to Buy back in May. Shares were at $51.11 before the call, rose to $52.11 on the day of the call and have trended up to almost $53 since. Atwood’s consensus price target now is almost $65.

Dollar General Corp. (NYSE: DG) remains a store that most Goldman Sachs clients would never visit, but the secular growth story remains for investors. Goldman Sachs raised the king of dollar stores to the Conviction Buy List on December 6. Unlike many other stocks where there was already a Buy rating, this upgrade was raised from a Neutral rating. The firm also raised its price target to $71 from $64, and the consensus price target is closer to $66 now. The highest analyst price target is up at $73.

Enbridge Inc. (NYSE: ENB) was already at a Buy rating, but Goldman Sachs raised it to the Conviction Buy list on December 24. It is rare for this firm to make a big call like this when so many personnel and clients are out for the holidays. Still, this converted price target from Canadian dollars implies about 17% upside, or closer to $50 in U.S. terms.

Extra Space Storage Inc. (NYSE: EXR) was already at a Buy rating, but Goldman Sachs added it to the prized Conviction Buy List on December 3. The firm’s price target for this top storage real estate investment trust was $50, which compares to a current price of about $42.50 and a consensus price target of almost $49.50. Goldman is well under the street-high target of $56.00, and there is a dividend of almost 4%.

HCA Holdings Inc. (NYSE: HCA) was already listed as a Buy rating, but Goldman Sachs raised it to the prized Conviction Buy list on December 18. The move was immediately after a Moody’s credit rating outlook upgrade of HCA as well.

Marketo Inc. (NASDAQ: MKTO) was moved up from Buy to the Conviction Buy List back on December 2. The cloud-based marketing software platform provider was given a $45 price target, which is the street-high price target from analysts. Marketo was a hot IPO that started public trading last May, and the consensus price target is $39.50. Marketo shares were around $32 when the call was made, but this was up to $36.50 at year-end.

MGIC Investment Corp. (NYSE: MTG) was added to the Conviction Buy List back on December 5. Its price target of $10 compares to about $8.50 now, and that was roughly the same when the call was made. Goldman Sachs believes that the company is benefiting from a solid improvement in credit and mortgage quality. MGIC’s consensus price target has risen about 40 cents up to $9.25 since the Goldman Sachs call, and the 52-week trading range is $2.36 to $8.69. For whatever it is worth, the $10 price target is well under the street-high target of $13 on this stock.

Priceline.com Inc. (NASDAQ: PCLN) was given the jump up to the prestigious Conviction Buy List back in November. We would normally skip this because of the time lag, but the stock has continued to rise since the upgrade. The Goldman Sachs analysts upped their price target on this travel-focused momentum stock from $1,260 to a street-high target of $1,500. This still implies serious upside versus the $1,160 year-end price.

Tiffany & Co. (NYSE: TIF) is one retailer that most of Goldman Sachs clients know well when it comes to spending. The luxury jeweler was added on December 5 to the Conviction Buy List, but this was raised from a prior Neutral rating. The firm took the price target up to $105 from $97 as well, which is only $2 shy of the current street-high price target. Analysts have warmed up since this upgrade as the consensus price target rose to almost $94 from $88.50 at the time of the call. Shares are up around $91 going into year-end.

U.S. Bancorp (NYSE: USB) was added to the Goldman Sachs Conviction Buy List on December 4, and the upgrade came at the expense of Citigroup Inc. (NYSE: C) after it was removed from the list after a long tenure. Warren Buffett keeps buying up shares of U.S. Bancorp as well. Goldman’s price target went to $44 from $40 in the call. Shares were about $39.50 shortly after the Goldman call and have ticked up to about $40.25 since. The consensus price target is closer to $41.30, also higher than the $40 consensus at the time.

Vitamin Shoppe Inc. (NYSE: VSI) was moved up from Buy to the Conviction Buy List at the end of November. Goldman Sachs expects Vitamin Shoppe’s same-store sales growth to accelerate in the fourth quarter and likely top the Wall Street estimates. The Goldman Sachs price target for the stock is $65, well above the consensus target of about $51.40. Its shares have actually drifted lower since Goldman Sachs made this call, and the consensus price target is only just above $53 on the stock.

Simply being added to the prized Goldman Sachs Conviction Buy List is not an assurance that the stock price will rise. Still, it is important to remember that this is what the wealthiest Americans are being told about how to position themselves for 2014.

Goldman Sachs Group Inc. (NYSE: GS) also made its debut on to the Dow Jones Industrial Average in 2013. Apparently, more than just wealthy investors have a high opinion of the firm.

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