Goldman Sachs (GS) and JPMorgan (JPM) reported earnings this morning. These earnings reports show why it is good to be king and the law of unintended consequences. New regulations, the need of competitors to repair their balance sheets and the exit of some of their biggest challengers to several of these two titans' core markets (ex, investment banking) have left these two Wall Street behemoths with growing market share in several business lines. I would look for this to be a long term trend and if you are going to invest in the financial sector, putting these two remaining "vampire squids" in your portfolio is certainly a good way to begin.
4 reasons you want to own Goldman Sachs at $136 a share.
- The company just reported a stellar quarter. Overall revenue up 53% Y/Y and investment banking sales were up an even better 64%. Earnings crushed estimates, coming in $5.60 a share. This is a huge increase from $1.84 a share last year and easily beat the consensus of just under $3.80.
- Consensus earnings estimates had already risen for FY2013 over the last month; look for many upward revisions in the coming weeks.
- This is the fifth straight quarter that Goldman has blown through estimates. The average beat over consensus estimates have averaged just under 40% over that time period.
- One of the upsides of the rules that will ban proprietary trading is a reduced need for capital, and Goldman has a huge amount of excess capital. It can invest in growing its other business lines, buy back stock and/or substantially increase its dividend payout.
4 reasons JPM is still a good long term bet at $46 a share:
- JPMorgan also provided a solid earnings report today. Revenue was up in line with consensus with a 10% gain Y/Y. Earnings came in at $1.39 a share, easily beating consensus of $1.22. It was also a 53% increase from last year's 90 cents a share.
- This was the third straight year or record profits at over $21B, despite the huge $6B plus "whale loss".
- The bank is one of the biggest players in the mortgage market. Mortgage volume rose better than 40% Y/Y this quarter to over $500B. The continued housing recovery should be a significant tailwind for the bank in the coming years.
- The bank has an A rated balance sheet, the best management among the major banks and pays a yield 2.6%. I would look for dividends to increase significantly over the coming years as government loosens its reins.