Goldman Goes For Broke, Raises 2011 S&P Target To 1,500

Tyler Durden's picture

Goldman's most recently inducted partner David Kostin, who no doubt promised to make his superiors proud for promoting him, just did so this morning. The chartist has just told all clients to sell everything that Goldman is offering as Goldman has just revised its year end S&P target fo 1,500 on expectations of what we believe translates to a priced to absolute perfection, Goldilocks centrally planned economy, where Bernanke finally succeeds where he and his predecessors have failed every single time before. As an aside, and as empirically proven, those who take the other side of the Goldman sell-side trade (i.e., the same side as the Goldman prop trade, as after all it is Goldman which is selling whatever clients are buying) end up making money the majority of the time in the long-run. Keep that in mind as the S&P fails to hit the revised S&P target in 358 days.

From David Kostin

We are raising both our 2011 and 2012 S&P 500 earnings estimates by $2 per share to $96 and $106, reflecting annual growth of 14% and 11%, respectively. We boost our year-end 2011 target to 1500 representing a potential total return of 21% including the 2% dividend yield. Our 3- and 6-month interim targets are 1325 and 1400, respectively. A re-accelerating US economy will drive 8% sales growth and explains our pro-cyclical recommendations. Focus on stocks with high beta to both the US economy and the stock market and firms with rising return on equity (ROE).

We expect 2011 EPS will reach a new high 5% above the prior peak
Goldman Sachs US GDP forecasts are above consensus for 2011 (3.4% vs. 2.6%) and 2012 (3.8% vs. 3.1%). A 50 bp shift in GDP growth equals $2 per share in EPS and every 50 bp shift in profit margins equals $4 per share.

Raising our S&P 500 year-end 2011 price-target to 1500
We forecast that at year-end 2011 the nominal size of the US economy will be 5% larger than today, the level of forward EPS will be 11% higher, the P/E will have expanded by 8% or 1 point, and S&P 500 will be 19% higher.

Themes: Buy (1) Cyclicals; (2) High beta; and (3) ROE growth
Our best ideas for 2011: (1) Long Cyclicals/short Defensives; (2) Stocks with high beta to both the US economy and stock market; (3) Growth in return on equity; (4) High Sharpe ratios; (5) High dividend growth.