Goldman Sach’s stock (GS-$150) has risen 7% off the February 2916 low and is 31% below the June 2015 high of $218. The weakness is due to lower earnings, continuing regulatory scrutiny and interest rate uncertainties. Election year sensitivities may also be weighing on the stock.
I like the stock and now adding to a modest holding.
Foremost, the Company is a market leader in an area of American supremacy. Domestically, GS will continue to lead the “League Tables” in frequency and size of transactions and benefit from the earnings collateral to that leadership. Globally, the Company will be able to choose from whatever high growth opportunities emerge.
The banking industry is undergoing profound change as regulations and technology increase the cost and skill of doing business. GS corporate advisory will have a lion share of this consolidation work but, perhaps more intriguing, is the prospect of the Company expanding its already material presence in consumer banking.
The recent earnings decline is because of lower interest earnings on customer balances. This impact is likely to reverse in the higher rate climate that generally benefits financial stocks.
The dividend is less than 20% of reported earnings. Indeed, the aggregate annual dividend of $1.7 billion trails the annual $2+ billion payout in non-cash compensation, presumably option and restricted stock. I would like to see a more equitable distribution.
BizProf100
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