Goldman Sachs (NYSE:GS) is set to report this week along with fellow Investment Brokerages Bear Sterns (NYSE:BSC) and Lehman Brothers (LEH). Now that the hype of the sub-prime mortgage crisis has been played out and helped contribute to an approximate 31 point sell off in Goldman Sachs, will GS finally put the sub-prime fears to rest with its earnings report on Tuesday?
Investors will certainly hope so, but the advice given to viewers last Friday (3/9/07) on CNBC’s television shows Mad Money and Fast Money is a bit conflicting. During Cramer’s Game Plan segment on Mad Money, Jim Cramer expects Goldman Sachs to still get hit by the bears even if they report a good number. On the other hand, Fast Money’s Guy Adami, said the first thing he plans to do is buy Goldman Sachs on Monday (3/12/07) morning.
So what’s the small investor to think? Jim Cramer recommended his viewers to wait until Friday (3/16/07) to buy any of the Investment Brokerages reporting this week. He feels that the bears will do anything it takes to spread bad news about the brokerages, and Wall Street analysts could issue downgrades to these companies.
Ultimately, the M&A market remains remarkably strong, and the global economy still remains strong. Goldman Sachs current consensus Q1 2007 estimates is at $4.90 per share which is below its $5.08 per share earnings from Q1 2006.
If you are looking to buy Goldman Sachs, this one is a tough call. Jim Cramer brings up an excellent point that if the stock starts to get sold off, then it could trigger more analyst downgrades. However, Goldman currently trading at just above 10 times earnings is just insultingly cheap, but the opportunity to buy Goldman Sachs at insultingly cheaper prices would just be a “golden opportunity”.
I currently own a long term position in Goldman Sachs, which I started on 2/28/07 the day after its 18 point sell off. I’m looking for another opportunity to add my position, and this week could be “opportunity knocking at the door”.
Disclosure: Author has a long position in GS.
GS 1-yr chart