Why I Bought Goldman Sachs Friday

Last Friday I purchased Goldman Sachs Group (GS) as the markets quickly recovered from month lows and broke to the upside as earnings season got underway. This was after GS reported great earnings that beat expectations by 40% with analysts increasing their expectations for future quarters and the year.

Markets Jump

What a difference two weeks make? Prior to the start of earnings season, the indexes were slowly falling to new month lows and signaling a sell. But a number of companies have beaten their expectations including Goldman Sachs, Johnson & Johnson (JNJ), JPMorgan Chase (JPM), and International Business Machines (IBM), giving the bulls reason to buy.

Earnings Expectations

The case for Goldman Sachs is fairly strong. For the quarter ending September 2009, analysts have increased their expectations for the company’s earnings from $2.08 a share to $3.30 a share. This is an increase of 59%. The stock itself has moved from $125 to $165 a share which does represent an increase of 32% but not equal to the earnings increase.

The Trade

The trailing price to earnings ratio is currently 37 with the forward price to earnings at 10. Earnings increases could reach 82% for the current quarter and 183% for the next quarter. These increases would make the P/E conservative. Analysts have an average price target of 173.5 for the year. With the markets moving higher and Goldman Sachs being one of the strongest in its industry, holding GS until the end of the earnings season is a trade that I wanted to make.

Goldman Sachs

Comments

[Ferdinand E...:]

Goldman Sachs are not one of the strongest in the industry. They are THE strongest. I said that in my finance book, and it is even more obvious now.

Jul 27 09:51 AM

[JCC:]

I purchased GS in November 2008, and am certainly glad that I did. It has been a great investment and continues to get stronger. For the coming quarter the high earnings estimate is $4.46, based upon the last quarter, and the removal of TARP related expenses, the earnings could be higher.

GS should be riding high for some time.

As you have probably seen on other articles, many consider those who purchased GS to be immoral. I see as smart investing!!

Jul 27 05:04 PM

[bigmoney:]

interesting, I was just reading another seekingalpha article "Where's the Derivatives Exposure?", and GS was one of the top. One comment was made that "derivatives were created to circumvent taxes, laws, regulations and/or to achieve purposes not visible to the naked mind.".

And if the derivatives market implodes, they will surely get a plush government bailout. Which I believe they already have, either directly, or indirectly via AIG. In a fair situation, if their derivative house of cards implodes, then it takes down the whole company. No bailouts. Period.

GS seems to be heads I win, tails you lose. Of course, that doesn't mean its not a profitable investment.

Jul 27 08:41 PM