Market Overview

Value Investing With Goldman Sachs (GS)

Value Investing With Goldman Sachs GS

Goldman Sachs Group (NYSE: GS) is a company that’s been in the papers a lot since President Obama and Former Treasury Secretary Paul Volcker have been on a crusade against the banks, especially Goldman. The stock has been in a downtrend since October, but I think this company will snap this trend and move back towards its all time highs.

What made Goldman Sachs so compelling to me is that its forward P/E based on 2010 estimates is 7x. The only time I remember seeing such low P/E’s was during the financial crisis before the earnings estimates were slashed repeatedly. This time around I think the only thing holding down the stock is the Presidents crusade, and the recent backing from the five former Federal Reserve members who are backing the Volcker rule.

Goldman Sachs in my opinion is the best investment bank out there, and in the long run at current prices should offer excellent upside. Historically, Goldman Sachs trades on a 10-12x P/E during times of normalized earnings. If you put the historical multiple towards the 2010 earnings you would get a Goldman price target of $180.52 to $222.24. The PEG alone is very low at 0.48. Based on these numbers and the current stock price of Goldman I believe it is at least 15% underpriced. (Figures taken from Yahoo Finance)

One of the problems I see with Goldman Sachs is that the analysts who follow the company currently have nine strong buys, nine buys, and seven holds. This hurts the stock as many of the analysts already have it at a buy rating, and the only way for an analyst to create a spark in the stock would be to have a hold rating upgraded to a buy, or strong buy. I do see that Goldman Sachs has seven up revisions to EPS in the last 30 days, compared to one down revision to EPS.

Technically I mentioned before that Goldman Sachs has been in a downtrend since it hit its 52 week high. What I do like technically is that Goldman has tried to pierce the 200 days MA a few times and I think if not during its current attempt to break the MA, then it should be due to break the MA soon. The 50 and 100 day MA’s are starting to converge with the 200 day MA. I would start buying shares here and look for a short term downside mark near $143.

Goldman Sachs to me looks like a great value investment for anyone who is willing to do their homework on the stock. The biggest factor that caps the current upside is our government officials, and if they lay off of Goldman then we may see the pressure to the downside removed.

Posted-In: Long Ideas Technicals Trading Ideas


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