A ‘Conviction Buy’ stock rating means the analyst is confident that his bet will be profitable and return positive gains. This rating represents the analyst’s resolute conviction about the trustworthiness of his analysis. . Thus, a Conviction Buy rating is not used too frequently by analysts, but it always gets the maximum attention for obvious reasons. Famous investment firm Goldman Sachs differentiates between a ‘Buy’ and ‘Conviction Buy’ and keeps updating its list of the latter rating. In this article we will analyze some of the stocks which the firm thinks are conviction buys and undervalued. We will also assess hedge funds’ sentiment around these stocks by using our comprehensive database of 750 hedge funds.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Chevron Corporation (NYSE:CVX)
Goldman Sachs raised Chevron Corporation (NYSE:CVX) to ‘Buy’ from ‘Neutral’ and set a price target of $118. The firm thinks the stock is good for investment due to Chevron’s cash flow and production prospects in 2017 and 2018 as it expects rebound in oil prices to $50-$60/bbl. In October, Morgan Stanley also upgraded Chevron to ‘Overweight’ from ‘Equal Weight’. For the third quarter, Chevron reported EPS of $0.68 and $30.14 billion revenue, better than the estimated EPS of $0.37 and $29.05 billion revenue. 53 hedge funds tracked by Insider Monkey were long Chevron Corporation (NYSE:CVX), as of the end of the third quarter. Ken Fisher’s Fisher Asset Management owned around 3.6 million shares of the company.
Goldman Sachs upgraded Zayo Group Holdings Inc (NYSE:ZAYO) to ‘Conviction Buy’ from ‘Buy’ and set a price target of $39. The firm thinks that the company is “attractively valued” and expects a major revenue growth from its cloud platforms related to the telecom infrastructure. Goldman thinks the shares of the Colorado-based company are currently trading at a discount, and this presents an attractive investment opportunity. For the fiscal first quarter, the company reported EPS of $0.06 on $504.9 million revenue, versus the forecasts of $0.05 EPS and $510.99 million revenue. At the end of the third quarter, 50 hedge funds out of 742 funds in our database were bullish on Zayo Group Holdings Inc (NYSE:ZAYO), up from 41 funds a quarter earlier.