Goldman Sachs Looks Too Cheap

As I write this, Goldman Sachs (GS) is testing 215 with a forward PE in the 9s! To help out with the market fear Bear Stearns (BSC) created, Goldman-issued subprime bonds were downgraded.

The real question is whether or not all this negativity on the IBs will have an impact to earnings?

If it will, then GS has all the right in the world to go down. And the chart is not pretty right now. Two moving averages are pointing downward, and it looks like GS (with the market) will stay in the mud until this fear and uncertainty go away. The only thing that can do that is the end of summer earnings of the brokers. (Or if Goldman were to flat out tell us that this is meaningless. But Goldman is not about to do that.)

Despite Goldman’s CFO having uncertainty regarding subprime investments during the last conference call, The Street still raised their estimates the coming quarter. This tells me, fundamentally, the street believes current estimates will be held despite this mess. I guess we have to wait and see.

But seeing the chart development, it is prudent to say ‘hold’ for now.

Comments

[mkhanarian:]

what is the exposure of GS' assets to sub-prime loans, and what were the effects of their assets being downgraded?

2007 Jul 22 06:14 PM