Don't Buy Goldman Sachs Today

 |  About: Goldman Sachs Group Inc. (GS), Includes: DB, JPM, MS
by: Jim Van Meerten

For me a position in Goldman Sachs (NYSE:GS) is not a place I want to place my money today. Bad press and a weak economy will continue to hold down its price. The stock is down 42.80% from its 1 year high which doesn't compare favorably with a market that is only 13.05% off its 1 year high. In the long run however, the graph provided by Barchart may show a bottom has been reached:

The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, restructurings, and spin-offs; and underwriting securities, loans and other financial instruments, and derivative transactions. The company’s Institutional Client Services segment provides client execution activities, such as fixed income, currency, and commodities client execution related to making markets in interest rate products, credit products, mortgages, currencies, and commodities; and equities related to making markets in equity products, as well as commissions and fees from executing and clearing institutional client transactions on stock, options, and futures exchanges. This segment also engages in the securities services business providing financing, securities lending, and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds, and foundations.

Its Investing and Lending segment invests in debt securities, loans, public and private equity securities, real estate, consolidated investment entities, and power generation facilities. This segment also involves in the origination of loans to provide financing to clients. The company’s Investment Management segment provides investment management services and investment products to institutional and individual clients. This segment also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. In addition, it provides global investment research services. The company was founded in 1869 and is headquartered in New York, New York. (Yahoo Finance profile)

Factors to consider:

Barchart technical indicators:

  • Barchart uses technical indicators varying from 7 days to 6 months to analyze the current direction of a stock's price
  • At the present time the buy signals are strengthening and the sell signals are weakening
  • 40% Barchart short term technical hold signal
  • Trend Spotter sell signal is weakening
  • Although the stock is trading above its 20 and 50 day moving averages it is still below its 100 day moving average
  • Relative Strength Index is 54.86% and rising
  • Barchart computes a technical support level at 97.81
  • The stock recently traded at 100.50 with a 50 day moving average of 98.81
  • The stock is 42.80% off its 1 year high vs the Value Line Index which is only 13.50% off its one year high
  • Over the past year the overall market as measured by the Value Line Index of 1700 stocks has down much better that GS:

Fundamental factors to consider:

  • 23 Wall Street brokerage firms have assigned 29 analysts to run numbers on this issue
  • Analysts project revenue to be down 20.60% this year and recover slightly by 13.20% next year
  • Earnings estimates are for a decrease of 53.70% this year and an increase of 118.20% next year (remember after a 50% decrease a 100% increase only puts you back at even). Estimates for a 5 year annual growth rate is only 8.89%
  • These numbers don't impress me but analysts still issued 5 strong by, 12 buy 11 hold and an under perform recommendation to their clients
  • Advisory and Underwriting revenue are down and not looking rosy in the near future. The mortgage and commodity volume is down and not looking good in the short term. The company will have to go to the credit markets to get new working capital because the equity market is not the place willing to infuse working capital at the moment
  • The stock price had a recent recovery putting it at a 14.85 P/E ratio which is above the market's P/E of 13.40
  • The dividend rate of 1.48% is lower than the 2.40% dividend rate of the overall market
  • For me the fundamentals are weaker than the general market

General investor interest:

  • Using Motley Fool readers as a barometer for the individual investor I'm surprised to see 6,222 readers expressing an opinion that 89% feel the stock will out perform the market
  • The more experienced and savvy All Stars vote 88% for the same result
  • 87% of the financial columnists Fool follows have bee 87% favorable on the issue
  • A;though Jim Cramer says no, Bob Olstein, Chris Davis and Charles Payne are more positive.

I think it is always helpful to see what the markets says. Over the past 6 months the competition has traded in tandem with GS down 30%, Morgan Stanley (NYSE:MS) down 38%, JP Morgan (NYSE:JPM) down 26% and Deutsche Bank (NYSE:DB) down 35%:

Summary: I don't know about you but I only have a finite amount of money and time and I'm not willing to place a bet and wait on Goldman Sachs to regain its leadership in the market. Investments banks are nice to own in a booming economy and this isn't that kind of economy. The stock's moving averages and the 14 day turtle charts over the past year do not signal a prolonged price reversal at the present time. Put this one on the back burner and look for stocks with double digit increases in revenue and earnings plus current upward price momentum to match.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.