Goldman Sachs Updates Its Conviction List: What That Means For Investors

Wall Street was excited Friday morning on four new additions to the Goldman Sachs Conviction Buy list.

The stocks that made the cut are Nutanix Inc (NASDAQ: NTNX), Wal-Mart Stores Inc. (NYSE: WMT), Ulta Beauty Inc (NASDAQ: ULTA) and NetApp Inc. (NASDAQ: NTAP).

All four stocks spiked on Friday’s open, with Nutanix notably up about 8 percent.

What Is The List?

A common misconception among traders is that a placement on or removal from Goldman Sachs’ Equity Conviction list is the same as a rating change from the firm, but it isn’t.

According to Goldman Sachs notes, the addition or removal of stocks from [the list] do not represent a change in the analysts’ investment rating for such stocks.

For example, Nutanix was already rated Buy by analyst Simona Jankowski. It could not have been rated higher, but was only just added to the list.

The Conviction “list” actually consists of several Regional Conviction lists, managed by the Investment Review Committee.

The list “contains Buy-rated stocks that our analysts have identified as having the best alpha generation opportunities from among the US and Canadian stocks, including ADRs, in our coverage universe,” a Goldman spokesperson told Benzinga.

In other words, stocks on the Conviction Buy list are stocks that the analyst truly convinced will have positive returns.

The spokesperson did not offer a more technical definition.

How Have Conviction List Stocks Performed?

Companies placed on the conviction lists have had mixed results. Periodically, a stock is removed from a list before the 12-month period for a price target can even come to completion.

Dicks Sporting Goods Inc (NYSE: DKS) provides an example. On June 28, 2016, Dicks was added to the Conviction Buy list with a $53 price target.

Twelve months later, at the end of June this year, shares of the company were trading at around $39. However, just a little more than a month after being put on the list it was downgraded to Neutral, albeit with a price target — for the 12-month period ending August 17 — raised to $61 and after a huge run up.

A positive example though, is Intuit Inc. (NASDAQ: INTU). On June 23, 2016, the company was added to the Conviction Buy list with a $123 price target. One year later, the stock had surpassed expectations and was trading at $140.

The Goldman Sachs spokesperson claimed the list has "outperformed the S&P 500 Total Returns Index by 25.8 [percent]" since it began in 2006.

These examples were selected randomly and found using Benzinga Pro, which provides subscribers with easily searchable real-time research, alerts, screeners and more.

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