Goldman Stock 'Convictions' That Lose Money - TheStreet

Goldman Stock 'Convictions' That Lose Money

As Goldman Sachs' equity-trading unit slumps, so do some of its most dearly held stock predictions.
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BOSTON (TheStreet) -- Goldman Sachs' (GS) - Get Report slide in second-quarter earnings and revenue proved that even giant vampire squid aren't infallible. Evidently, the squid's "conviction buy" ratings aren't either.

The most embarrassing part of

Goldman's earnings report

released Tuesday was the performance in equities trading. The business had revenue of $235 million, as

TheStreet's

Dan Freed pointed out. That compares with $1.47 billion in the first quarter and $2.16 billion a year earlier. Even

Morgan Stanley

(MS) - Get Report

, a perennial runner-up to Goldman, beat analysts' second-quarter expectations and posted little-changed equity-trading revenue compared with the first quarter.

Goldman stumbled not only in its key trading businesses but also in stock-picking. Periodically, the New York-based bank adds "buy"- and "sell"-rated shares to what it calls its "conviction" list, which "represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return," Goldman says in a disclaimer. For investors, owning a stock on

Goldman's "conviction buy" list

is as close to a sure thing as it gets.

Still, some recommendations haven't panned out as stocks have been dragged down by concerns of slowing economic growth at home and abroad. Goldman's equity-trading revenue tumbled because stock-market volatility rose when the firm was expecting a decline.

The following five stocks were added to Goldman's "conviction buy" list during the second quarter but have handed investors losses so far. Many of these stock price targets have a 12-month horizon, so they may still turn out to be winners for the bank.

5.

Boeing

(BA) - Get Report

Goldman's Call

: The firm added the airplane maker to its "conviction buy" list on May 10 with a 12-month stock-price target of $84. "We see multiple near-term positive catalysts for BA from now to year-end, including the Farnborough Air Show, new order announcements, further production rate increases announcements, earnings, and 787 deliveries," analyst Noah Poponak wrote in a research note on June 25.

Stock Performance Since Recommendation

: -5.1% (July 21 close)

S&P 500 Performance Since Recommendation

: -3.7%

Who Got It Right

: Three research firms have had a "sell" rating on Boeing since April, including Societe Generale and Jyske Bank. They have a price target on Boeing shares of $65 and $64, respectively, which is about where the stock currently trades.

4.

Huntsman

(HUN) - Get Report

Goldman's Call

: On May 7, Goldman added the chemical company to its "conviction buy" list with a 12-month stock-price target of $13. Analyst Robert Koort wrote in a May 26 research note that the market has failed to appreciate "the transformation HUN has experienced in recent years as it shed its commodity petrochemicals and substantially strengthened its balance sheet."

Stock Performance Since Recommendation

: -7.5% (July 21 close)

S&P 500 Performance Since Recommendation

: -5.2%

Who Got It Right

: Goldman Sachs is the only research firm with a "buy" rating on Huntsman, reflecting Koort's assertion that investors have discounted Huntsman's change in strategy. Among them, Gleacher & Co. has a "hold" rating and $10 price target, 50 cents above Huntsman current price.

3.

Northern Trust

(NTRS) - Get Report

Goldman's Call

: Goldman added the wealth manager to its "conviction buy" list May 24, predicting the stock would climb to $59 over the next 12 months. Analyst Brian Foran initially had upgraded Northern Trust with a "buy" rating May 10, calling the stock a "tactical way" to play foreign-exchange volatility.

Stock Performance Since Recommendation

: -9.1% (July 21 close)

S&P 500 Performance Since Recommendation

: -1.7%

Who Got It Right

: No research firms have a "sell" rating on Northern Trust, although more than half of the 25 analysts covering the company recommending holding the shares. Stifel Nicolaus and Jefferies maintained "hold" ratings on the stock before Northern Trust yesterday reported second-quarter earnings that beat analysts' estimates. Jefferies has a stock-price target of $53.

2.

BlackRock

(BLK) - Get Report

Goldman's Call

: The asset manager was added to Goldman's "conviction buy" list May 24 with a 12-month $175 price target. Analyst Marc Irizarry wrote in an April 26 research note that, given "the stock's recent underperformance, we believe the risk/reward is attractive for what we view as a core asset management holding."

Stock Performance Since Recommendation

: -13.9% (July 21 close)

S&P 500 Performance Since Recommendation

: -1.7%

Who Got It Right

: No research firm has a "sell" rating on BlackRock, although Citigroup and Deutsche Bank recommend holding the shares. They have price targets of $175 and $185, respectively.

1.

CME Group

(CME) - Get Report

Goldman's Call

: The firm added the owner of the world's largest futures and options exchange to its "conviction buy" list May 24 with a 12-month stock-price target of $350. In a May 19 research note, analyst Daniel Harris had reiterated the bank's "buy" rating on CME Group, noting at the time that interest-rate swap clearing is coming soon, regulatory reform is largely an "incremental positive," and that the company's business fundamentals are "very robust."

Stock Performance Since Recommendation

: -14.2% (July 21 close)

S&P 500 Performance Since Recommendation

: -1.7%

Who Got It Right

: Credit Agricole Securities slapped an "underperform" rating on CME Group on June 11 along with a $320 price target. Since then, CME Group shares have dropped 9.4% to about $275.

-- Written by Robert Holmes in Boston

.

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