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Inside Wall Street


Running Room at Goldman

When Goldman Sachs rocketed to a 52-week high of 185.52 on Sept. 22, some pros warned that it had hit a peak—to be followed by a drop. Don't count on it, assert the bulls, saying Goldman Sachs (GS), now at 183.64, is a long way from its 2008 high of 215 and its all-time record of 250 in 2007. With this in mind, some big investors have- become more bullish. "With $20 a share of potential earnings in two years or less, the stock is still attractively valued," says Karl Mills of Counterpoint Select Fund (CPFSX) (it owns shares), who sees Goldman at 240 in a year or two. It earned just $4.47 in 2008 because of trading losses and a drop in investment banking activity during the crisis. "Goldman's superior business model—focused on proprietary trading, investment banking, and asset management—has pushed it way ahead of its peers," says Mills. And now that banking and merger activity has picked up, "Goldman stands to benefit and capture the lead in many equity deals," he adds.

Matthew Albrecht of Standard & Poor's (MHP) says the stock's continued advance reflects Goldman's global reach, operating leverage, and solid balance sheet. He rates it a buy, based on his profit forecasts of $17.12 a share in 2009 and $18.40 in 2010. Goldman's robust financials, he says, give it an edge in gaining market share in the economic recovery.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Drilling In Promising Spots

Shares of Petroleum Development (PETD), a little-known, independent oil-and-gas outfit, aren't showing much energy, stuck between 16 and 18 since May. But the stock, now at 18.46, may perk up: It has caught the eye of big investors who call it one of the best values in the oil patch.

"With a yearly production growth rate of 12% and book value of 27, the stock at its current depressed price of 18 is a giveaway," says Scott Black, president of Delphi Management, which owns shares. Black says Petroleum Development is worth 53, based on its reserves, which consist of 81% natural gas and 18.5% crude oil. The company drills primarily in the Rockies, the Appalachians, and Michigan.

John Gerdes of SunTrust Robinson Humphrey, who rates Petroleum Development a buy, sees earnings of 54 cents a share in 2009 on revenues of $363 million, and 61 cents in 2010 on $431 million.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

An Undervalued Biotech?

Biotech stocks have rallied lately, but they're still below their historical highs. One undervalued outfit, says Chrystyna Bedrij of Griffin Securities, is Ziopharm Oncology (ZIOP), whose shares have jumped to 2.06 from 50 cents in May. One major product, Zymafos, a sarcoma treatment, showed favorable results in phase I and II trials last year, with a potential market of $400 million, says Bedrij. (Griffin did business with Ziopharm). A phase III trial is set for 2010.

Another Ziopharm drug, Zinapar, showed efficacy for T-cell lymphoma and "was well tolerated" by patients in recent trials, reports James Armitage, professor of oncology at the University of Nebraska and past president of the American Society of Clinical Oncology. Simos Simeonidis, senior biotech analyst at Rodman & Renshaw, says Ziopharm is undervalued, thanks to a "very promising" pipeline

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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