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Goldman's eight new 'conviction' stock buys Add to ...

Goldman Sachs has added 19 stocks to its Conviction Buy List in 2011 and removed others. For investors willing to go against the grain and buy stocks in a down market, the global investment bank's picks may offer substantial upside. Of those 19 new Conviction Buys, the following eight offer the most potential, based on current price targets. Each is expected to rise at least 20 per cent and as much as 36 per cent in the next 12 months.

8. Buckeye Partners is an oil-and-gas storage and transportation company. It is structured as a master limited partnership, a unique corporate structure that's required to pay the majority of its cash flow to shareholders in exchange for preferential tax treatment. Buckeye owns a pipeline for refined petroleum products spanning 5,400 miles in the eastern and mid-western U.S. Its stock has fallen 5.4 per cent in 2011. It pays a quarterly distribution, taxed differently than a qualified dividend, of 99 cents (U.S.), converting to an annualized yield of 6.3 per cent.

Buckeye's adjusted fourth-quarter earnings rose 51 per cent to 66 cents, missing analysts' consensus target by 31 per cent. Sales, up 75 per cent, beat consensus by an impressive 55 per cent. Buckeye's stock sells for a forward earnings multiple of 17, a 19 per cent premium to its oil-and-gas peer average. Of analysts covering the equity, four, or one third, advise purchasing it and eight advise holding. None advocate selling. Goldman expects the stock to rise 20 per cent to $76. Barclays ranks Buckeye "equal weight", expecting it to appreciate to $71. Deutsche Bank rates it "hold", predicting a drop to $60.

7. NCR Corp. sells financial computer hardware, including ATMs and personal kiosks, such as DVD rental machines. Its stock has advanced 33 per cent in the past 12 months and has risen an eye-catching 19 per cent so far in 2011 amid the stock sell-off. NCR's adjusted fourth-quarter earnings dropped 8 per cent to 55 cents, but exceeded researchers' consensus estimate by 10 per cent. Sales grew 4.5 per cent. NCR's quarterly gross margin rose from 21 per cent to 23 per cent and the operating margin inched up from 3.4 per cent to 3.7 per cent. The company has $485-million of net liquidity (cash minus debt).

NCR's stock trades at a forward earnings multiple of 9.8, a book value multiple of 3.4 and a sales multiple of 0.6, 31 per cent, 27 per cent and 80 per cent discounts to computer and peripheral industry averages. Its PEG ratio, calculated by dividing the trailing P/E by analysts' terminal earnings growth rate, of 0.2 signals an 80 per cent discount to estimated fair value. Currently, five, or 45 per cent, of analysts in coverage rank NCR a "buy" and six rank it "hold." None rate it "sell." Goldman expects the stock to rise 24 per cent to $23. JPMorgan, ranking it "neutral", forecasts a marginal rise to $19 over 12 months.

6. Embraer designs and develops jet and turboprop aircraft for civil and defense aviation. Based in Brazil, Embraer's American Depository Receipt, or ADR, trades on the New York Stock Exchange. The ADR has appreciated 41 per cent in 12 months and has gained 12 per cent in 2011. Embraer's due to release fourth-quarter results on May 2. Its adjusted third-quarter earnings expanded 2.7 per cent to 70 cents, more than doubling the consensus projection. Sales fell 17 per cent, missing by 9.5 per cent. Embraer held $2.1-billion of cash and $1.9-billion of debt at quarter's end.

Embraer shares sell for a book value multiple of 2.4, an attractive 56 per cent discount to the aerospace and defense industry average. They are fairly valued on the basis of trailing earnings, forward earnings and sales. Of researchers following Embraer, six, or 55 per cent, advise clients to purchase its stock, four suggest holding and one says to sell. Goldman is most bullish, valuing Embraer at $42 and implying a one-year return of 26 per cent. Credit Suisse more conservatively foresees a rise to $37. And RBC Capital Markets forecasts that the stock will ascend to $35.

5. Carnival owns several cruise lines, including Carnival, Princess and Holland America. Its stock has gained 5.7 per cent in the past 12 months, but has fallen 14 per cent in 2011. Carnival's adjusted fiscal first-quarter earnings increased 58 per cent to 19 cents, matching the consensus target. Despite cyclical consumer exposure, Carnival retained profitability during 2008 and 2009. Its sales have gained 3.6 per cent a year, on average, since 2008. Carnival held $429-million of cash and $9.4-billion of debt at fiscal fourth-quarter's end. First-quarter data isn't available.

Carnival's stock trades at a trailing earnings multiple of 16, a forward earnings multiple of 11, a book value multiple of 1.4, a sales multiple of 2.1 and a cash flow multiple of 8.3, 50 per cent, 51 per cent, 20 per cent and 36 per cent discounts to hotel, restaurant and leisure industry averages. Its PEG ratio of 0.8 signals a 20 per cent discount to estimated fair value. Of analysts evaluating Carnival, 18, or 78 per cent, rate its stock "buy", three rate it "hold" and two rank it "sell." Sanford Bernstein expects a rise of 36 per cent to $54. Goldman offers a $51 projection. JPMorgan predicts an advance to $47 over 12 months.

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