The Return Of Goldman Sachs

Shazir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At the beginning of 2008, Goldman Sachs (NYSE: GS) was in trouble.  In fact it was practically bankrupt, but since then Goldman Sachs has re-conquered its territory, and with its record earnings and phenomenal capital gains, the company has become a new and revived bank. In the recently disclosed fourth-quarter earnings for 2012, the numbers were much stronger than analysts had forecasted. These earnings pushed the market capitalization of the company's stock much higher--in fact, to its 52-week high. The stock picked up again after the company announced the sale of its stake in ICBC for $1 billion. Goldman Sachs has been doing well lately, but there might still be some factors of uncertainty. Below are some of the factors that can lead the stock price to swing either up or down.

Earnings

Goldman Sachs has had excellent market performance in the recent past. The company's share price hit its 52 week low in 2012; however, since then the stock has surged significantly from that point. The 52 week range of the stock price is between $90.00 and $147.00. Everyone is expecting Goldman Sachs to continue to grow because it has had a very good growth rate.

Goldman Sachs recently released its results for the fourth quarter of 2012. The numbers were stronger than what analysts' estimated by a significant extent. For the fourth quarter, the EPS of the firm stood at $5.60, which was far higher than the average analysts' estimate of $3.66. The revenues for the fourth quarter stood at $9.24 billion, which was also much higher than estimates of $7.83 billion. These figures have helped Goldman Sachs reach its new 52-week high, and since that day Goldman Sachs has been hitting new highs every day. Because of the continued growth in the EPS, Goldman Sachs has continued to be the leader in investments and banking. When analyzing Goldman Sachs' subdivisions, mortgage banking had a net income of $418 million, which was a big jump from the previous quarter's loss of $269 million.

Fundamentals

The company's stock is not too risky, with beta at 1.4. Another plus for Goldman Sachs is its current price--analysts expect Goldman Sachs to continue to hit new highs, with an average price target of about $160.00. Another factor to consider is that Wall Street expects Goldman Sachs' revenue and profitability to fall next year, but then grow afterwards. Analysts estimate that Goldman Sachs' revenue growth will be approximately 7% for the next 5 years. Another factor is that most analysts view Goldman Sachs as a buy. One main factor that allowed Goldman Sachs' share price to skyrocket was the disclosure of it selling Industrial & Commercial Bank of China (ICBC). Goldman Sachs managed to gain $1 billion from the sale, and shares subsequently surged. The sale of this company signifies that Goldman Sachs is trying to focus on its niche.

Comparisons

In my opinion Goldman Sachs is a very good company, and it's certainly stong in comparison to companies within its sector. Goldman Sachs has proved that, but below are some comparisons to clarify this even more.

JP Morgan Chase & Co. (NYSE: JPM)

JP Morgan Chase has been around for a while now. It has been recognized as a reliable company during the 2008 recession. That being said, Goldman Sachs has had a better history of reliability; in the recession its stock price suffered 10% less than that of JP Morgan Chase.  JP Morgan Chase has also had a long history of lawsuits, losing more than hundreds of millions of dollars over the years in court. As far as market share goes, both of these companies have somewhat different business bases. Goldman Sachs focuses on high net-worth individuals, while JP Morgan Chase mainly focuses on the middle class.

Bank of America (NYSE: BAC)

Bank of America's lawsuits have taken over its ability to operate as a conglomerate--it just cannot simply work with a bunch of attorneys hovering over its head, so now all it needs to do is get rid of pending lawsuits and increase revenue. It will be hard for Bank of America to gain back the market share that it has lost to this. As far as Goldman Sachs goes, Goldman Sachs is just a better company financially. Goldman Sachs has about $875 billion in liabilities, as compared to Bank of America's roughly $190 billion. Bank of America could take away some market share, but it would take a long time. If Goldman Sachs keeps up the pace then it would surpass Bank of America by an even wider margin. 

Additional Information

The factors listed below signify the growth of Goldman Sachs' core business, banking, and investments. These factors have led to Goldman Sachs' EPS growth.

  • Revenues in Investment Banking were $1.41 billion for the fourth quarter of 2012, more than 60% higher than the fourth quarter of 2011 and more than 20% higher than the third quarter of 2012.
  • Net revenues in the firm's underwriting business were $897 million, more than double the amount in the fourth quarter of 2011.
  • Net revenues in both debt underwriting and equity underwriting were significantly higher compared with the fourth quarter of 2011.
  • Net revenues in Institutional Client Services were $18.12 billion for 2012, 5% higher than 2011. Most of the above were up a significant amount because of higher results in cash.
  • One of the biggest factors that pushed the share price of Goldman Sachs was again the release of its stake in ICBC. Goldman Sachs managed a cash inflow of $1 billion from the sale, and shares surged.

Downfall

There is always uncertainty in everything, but usually you try to limit that uncertainty as an investor. Goldman Sachs is the perfect fit for this scenario. There are multiple factors that point to its continual growth, but there are some factors that point to its downfall. One main factor within the next five years is the U.S. economy; although there are multiple factors that point to the U.S. economy getting better we still have not recouped all our losses. For this reason, Goldman Sachs might not be great for your portfolio.

Conclusion

After examining Goldman Sachs in-depth, I have come to the conclusion that Goldman Sachs is the best bank to invest in. For the reasons listed above, I anticipate that Goldman Sachs will deliver phenomenal returns for the investor. Again, due to its EPS and its fundamentals Goldman Sachs is a company that you don't want to miss out on. I realize that the financial sector has done exceptionally well for the last few months, but in my opinion it will continue to grow stronger, with a growing economy and lower unemployment, banks will continue to gain more capital as time progresses.


ms349846 has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Bank of America and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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