The Goldman Sachs Conviction Buy List Seeks to Guide Investors Toward Profitability

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Dec. 17 2020, Updated 11:48 a.m. ET

Indexes that follow the S&P 500, DOW Jones Industrial Average, and Nasdaq Exchange don't seek to outperform the market. Instead, they aim to ride the market's waves and come out stronger thanks to diversified returns. The Goldman Sachs conviction buy list isn't that.

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Goldman Sachs maintains a conviction buy list to help guide investors toward stocks they think will reap greater returns than the holistic market landscape.

What is Goldman Sachs' conviction buy list?

The Goldman Sachs conviction buy list is a list of stocks that analysts expect to outperform the market in the near future.

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The conviction buy list is ongoing. Analysts from Goldman Sachs continuously add and remove stocks from the list as market conditions shift. 

For example, analysts labeled Devon Energy (which trades under the ticker symbol "DVN" on the NYSE) as a conviction buy on Dec. 16. They also added a per-share price target of $20. As of Dec. 17, Devon is trading at $15.74 per share. While they added Devon to the list, Goldman analysts removed EOG Resources Inc ("EOG" on the NYSE).

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Following the news, Goldman Sachs analyst Brian Singer said, "Our preference for DVN on the CL reflects our willingness for slightly greater beta and expected recognition for more transformational changes at DVN. We also note that DVN’s proposed merger with WPX, if successful, would reduce New Mexico federal land exposure and be accretive to FCF yield/corporate returns while retaining favorable leverage."

In addition to the conviction buy list, Goldman Sachs' puts together a conviction sell list. An analyst might label a stock as a conviction sell if it doesn't seem like it will live up to the market's standards.

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What is high conviction?

Goldman Sachs keeps two factors in mind when building their buy list:

  1. The size of the stock's potential return.
  2. The likelihood of the stock to realize that return.

With that in mind, a stock with a high conviction has both a large potential return and a likely chance to realize that return.

Are conviction stocks good for investors?

Conviction stocks can be good for investors who are already holding the position in question. However, such a label can influence the stock's price itself.

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How does Goldman Sachs' conviction buy list help stocks and investors?

When a stock gets added to Goldman Sachs' buy list, it tends to inflate. You can see this with Bristol-Myers Squibb Co., which trades under the ticker symbol "BMY" on the NYSE. On Dec. 15, an analyst at Goldman Sachs rated the stock as a conviction buy after the Food & Drug Administration (FDA) announced they may approve additional pharmaceutical treatments from the company. Bristol-Myers stock has risen nearly four percent since the announcement. 

For investors who already hold the stock or can manage to get in early via pre-market trading, they can see their position skyrocket. 

If an analyst rates a stock as a conviction sell, you can imagine that stock price falls as investors rush to get out of dodge.

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