BOSTON (TheStreet) -- Goldman Sachs (GS - Get Report) updated its Conviction Buy List, a compilation of the Wall Street bank's favorite U.S. stocks, for 2011. Investors ought to review the following 10 picks, which offer the greatest 2011 upside potential, according to Goldman. Below, the stocks are ordered by return potential, from plenty to most.
9. Crown Castle ( CCI owns, operates and leases wireless communications towers. Recent lease modifications with carriers, including AT&T ( T, are expected to bolster 2011 revenue. Given the company's history of exceeding rental revenue guidance, Goldman is bullish on the company's growth prospects and is forecasting rental revenue 2% above the top threshold of management's guidance and 77 cents of earnings in 2011. Its $54 target was derived by combining free and discounted cash-flow analyses, implying 24% upside.
7. Sapient ( SAPE is a services company, selling advisory, analytics and consulting services to businesses and government agencies. It also operates technology outsourcing centers in India. Goldman has a $15.50 price target on the stock, suggesting an impending 12-month return of 27%. The stock returned 47% in 2010 and has delivered annualized gains of 11% since 2007. Sales and net income advanced 16% and 171% a year, on average, over that span. The stock trades at a forward P/E of 24, a 32% industry premium. The company has $187 million of net liquidity (total cash minus debt).
5. Precision Castparts ( PCP makes metal components and castings, forgings and fasteners for aerospace and industrial companies. Precision has significant fixed-costs, so incremental volume bolsters profit margins significantly. The company beat Goldman's fiscal second-quarter sales forecast by 3.5%. It expects Precision's stock to advance 28% to $128 within the next 12 months. Precision commands a premium of 93% over its aerospace peers, based on cash flow per share. Still, 75% of analysts covering Precision rate it "buy."
3. Phillips-Van Heusen ( PVH - Get Report) makes clothing, including dress shirts, neckwear and shoes, under the Calvin Klein, Izod and Tommy Hilfiger brand names. An inflationary environment will benefit the company, according to Goldman, which expects $15 million of cost synergies in 2011, resulting from expense leverage on market spending and "sourcing gains from larger scale and category expansion at Macy's ( M." Goldman values the stock at $85, suggesting 34% upside. Roughly 73% of researchers rank it "buy."
1. Starbucks ( SBUX - Get Report) is Goldman's favorite pick within a restaurant industry that it believes has "the best supply/demand dynamics in 25 years." The number of U.S. restaurants has fallen to 1986 levels, following recession closings. According to Goldman, Starbucks is due to return 36% in 2011 on multiple expansion and steady earnings growth. The bank thinks the Street is underestimating same-store sales growth for the coffee chain, forecasting a 7% to 8% uptick in 2011. Emerging market expansion will add fuel to the fire, bolstering 2011 sales.
-- Written by Jake Lynch in Boston.
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