Last week wrapped up the final week of Q2 earnings. For many Wall Street firms, that means updating investment models, revising outlooks and adjusting price targets on companies that recently reported.

One research and ranking system in particular has a storied following on Wall Street: Goldman Sachs’s Conviction Buy List.

Whereas other firms may top out with a “buy” rating for stocks deemed worthy of investment, Goldman Sachs goes one step further to single out stocks they feel have a strong chance of beating the market.

#-ad_banner-#​Typically saved for the firm’s clientele, the list still manages to reach the public through various news outlets, which often means a quick pop in the stock price as investors catch on.

Given the firm’s reputation for top-tier equity research, I like to keep my eyes out for additions and deletions as they occur.  This summer has given way to a number of new names added to the list.

Let’s see how they stack up against each other.

The Valspar Corp. (NYSE: VAL) landed on the coveted ranking just a few weeks ago, making the jump from “neutral” to “conviction buy” on July 22nd.  The ubiquitous paint and coatings manufacturer saw profits climb 12% on quality business growth in the second quarter of 2014, prompting a beat on both earnings and revenue fronts.

Goldman’s positivity stems from VAL’s discounted valuation versus its peers.  The stock is trading at a low P/E relative to competitors, and the firm thinks the price will catch up once more investors are clued in to that fact.  With the upgrade came a jump in the firm’s expected price target from $83 to $97 – that’s 25% of upside if Goldman’s analysts are right.

Big box retailer Costco Wholesale Corp. (Nasdaq: COST) received an upgrade from the investment bank on July 29th, also leaping from “neutral” to “conviction buy”.

Consistent growth in same store sales continues to delight investors and analysts alike, with international growth outpacing domestic.  This lends some explanation to the stock’s worrisome P/E of 27, however.

The warehouse club currently trades around the $119 mark, with Goldman giving the stock a predicted value of $136.  Wall Street neighbor Morgan Stanley also has high hopes for Costco, initiating coverage in June with an “overweight,” or strong buy, rating and issuing a price target just $2 lower than Goldman’s.

Power plant operator Calpine Corp. (NYSE: CPN) made a home on the Conviction Buy List around the same time as Costco, pegged with a price target of $27.  Goldman Sachs analyst Michael Lapides favors Calpine’s strong cash balance, which could be north of $1.6 billion by the end of the third quarter.  Those hefty reserves could lead to significant buybacks or even acquisitions.

Analysts at ISI Group and Jefferies were quick to follow suit with their own upgraded pricing targets, predicting $24 and $23.50, respectively.  The raises were likely prompted by Calpine’s latest surprise beat on August 1, posting positive earnings of $0.33 when the consensus was expecting a loss of $0.02.

Barrick Gold Corp. (NYSE: ABX) is the most recent stock to make the cut, debuting on the list on August 8.

Unlike other upgrades from Goldman, ABX has more contention among analysts across the Street.  HSBC downgraded the gold and copper producer to “underweight” just two weeks prior. In a group of 29 analysts, 22 recommend to hold and only five support a buy position.

With ABX shares at 1/3 of the value they were in 2011, why does Goldman Sachs believe the stock will hit $21 soon? Goldman cites improved operations, lowered debt through divestments and the expectation of positive free cash flow in Q3 2014.

Risks to consider: Despite the investment bank’s influence, a conviction buy rating from Goldman Sachs does not guarantee a stock will shoot to the moon.  Short-term pops in price are common, but they can revert quickly once the honeymoon is over.  Those averse to volatility should distance themselves between the ratings release and a well-thought-out entry.

Action to take –> Sifting through analyst ratings is a great way to read the pulse of a stock through a professional’s mind.  Complicated models and in-depth company research help to shape analyst opinions and Goldman is known for employing some of the best and brightest around.  Compound your own research with the commentary of these heavy-hitters to make the most informed investments you can.

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