It May Be Time To Buy Goldman Sachs

| About: Goldman Sachs (GS)

Willie Sutton was asked why he held up banks and he replied: "Because that's where the money is". Well if investing is being where the money is maybe now is the time to start looking at a bank. Goldman Sachs (NYSE:GS) is one of those old beaten down trading firms that decided it wanted to be a bank. They had one of their worst quarters ever not by being a bank but by losses in their own trading accounts. A look at the weekly stock price over the past 5 years in this graph provided by Barchart shows a beaten down stock that may be in recovery:

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Notice the tail end of the stock's chart. The market has been in recovery and when you compare the price increase of the general market over the last 6 months using the Value Line Index to GS the old adage: "A rising tide floats all boats" is never more true:

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The Goldman Sachs Group, Inc. provides investment banking, securities, and investment management services, as well as a range of financial services to corporations, financial institutions, governments and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory services, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, and restructurings and spin-offs; and underwriting activities comprising public offerings and private placements of a range of securities, loans and other financial instruments, and derivative transactions.

The company's Institutional Client Services segment provides client execution services, 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; and offers prime brokerage services. Its Investing and Lending segment originates longer-term loans; and invests in debt securities, loans, public and private equity securities, real estate, consolidated investment entities, and power generation facilities.

The company's Investment Management segment provides investment products and services to institutional and individual clients, as well as offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. The Goldman Sachs Group, Inc. was founded in 1869 and is headquartered in New York, New York. (Yahoo Finance profile)

Factors to consider:

Barchart technical indicators:

  • 56% Barchart technical buy signal
  • Trend Spotter buy signal
  • Below its 20 day moving average but above its 50 and 100 day moving averages
  • Although the stock is 30.29% lower in the past year it now trades about 2.97% off its 1 year high
  • Relative Strength Index is 63.47%
  • Barchart computes a technical support level at 113.15
  • Recently traded at 117.87 with a 50 day moving average of 106.05

Fundamental factors:

  • 24 Wall Street firms have assigned 29 analysts to monitor the bank's numbers
  • Analysts predict revenue will increase by 14.70% this year and another 6.10% next year
  • Earnings forecasts are robust with an estimated increase of 155.00% this year, an additional 16.20% next year and an annual compounded rate of 12.15% over the next 5 years
  • These consensus numbers resulted in brokerage firms releasing 4 strong buy, 10 buy, 14 hold and no under perform or sell signals to their clients
  • Analysts think that if all their numbers are made the stock could give investors a 22% - 26% annual total return over the next 5 years
  • The P/E ratio is 26.56 (coming off poor earnings) compared to the market P/E of 15.30
  • The dividend rate of 1.20% is only 10% of estimated earnings and about 1/2 the market's dividend rate of 2.20%
  • The stock has an A financial strength rating
  • Warren Buffet owns 7.7% of the stock
  • Value Line has given the stock it's worst timeliness ranking of 5 - but note that during the last big market rally the worst stocks ranked at 5 outpaced the best stocks rated 1

General investor interest:

  • On Motley Fool 6,218 readers have expressed an opinion on the stock
  • They voted 89% that the stock will beat the market
  • The more experienced and savvy All Stars voted 90% for the same result
  • On readers shared portfolios the readers that made the most money in the past were long term short sellers
  • Fool follows columnists and analysts and notes that 90% are still positive on this issue
  • Although Zacks and RBC Capital Management recently gave sell signals, Jim Cramer, Citigroup and CreditSuiss still have it on their buy lists.

You should always compare a stock's price momentum to its competition and in the last 6 months Goldman Sachs was up 28% with Morgan Stanley (NYSE:MS) up 26%, JP Morgan Chase (NYSE:JPM) up 24% and CME Group (NASDAQ:CME) up 16%:

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Summary: As many new banks transition from Securities trading firms to banks there is bound to be new regulation. A look at the personnel in the present administration shows many, many former Goldman Sachs, JP Morgan and Morgan Stanley employees in positions of authority. I look for favorable regulation from that crowd. I like the fact that this is a Value Line 5 ranked stock. It's not often you can find a poorly rated stock that is forecasted to have good revenue and earnings projections. Long term investors should look here. Just like this is not your father's Oldsmobile - Opps! there is no more Oldsmobile neither is Goldman Sachs like you father's old bank. I think we are in the ground floor on investments in banking stocks. Traders should monitor the 14 day turtle channel for short term opportunities:

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GS over the next 72 hours.