5 Part Diversity Series: #2 Goldman Sachs (GS)
July 24, 2008 – 11:12 pmArticle Notes
-Best investment bank
-One of the few financial institutions in this environment making a worthwhile profit
-Competitors are going down
Before I begin getting into the meat of this article, all I can say is that Goldman Sachs(GS) is one the best financial companies in the world. Better yet, this is hands down THE BEST independent investment bank in the world period. I know this is my 5 part diversity series, but I am very biased towards financials. All great investors have portfolios that lean towards a sector that they love and managed to make a great deal of money off of it. Whether you are Boone T. Pickens who is bullish on oil or the great Warren Buffett who is bullish on financials, money can be made in any way. I personally happen to love financials like Buffett.
This article will be short and sweet. I am not going to barrage you with numbers and ratios like I do in my other articles, but I am going to explain broad basics that will hopefully convince you to purchase this stock.
As I said before, this is the best and I mean the BEST independent investment bank on this planet. With competitors like Bear Stearns(BSC) going out of business and Lehman Brothers (LEH) being chopped up like fish chum right now, this company is getting more and more attractive as time passes. At the end of 2007, this company has 131 BILLION dollars in free flowing cash on its balance sheet and over 1 trillion in assets. The company has yet to lose money on any quarter, even during this financial mess we are in. Goldman Sachs netted 1.511 Billion in income in the first quarter of 2008 and 2.087 Billion during the second quarter, respectively. Even giants like Merrill Lynch (MER) with over a trillion in total assets are getting killed. Merrill Lynch has lost over 11 billion dollars so far in the first two quarters of this year with no signs of slowing down. Goldman Sachs, internally, is broken up into three segments: Investment banking, Trading investments and Asset management. 68% of the companies revenue comes from trading investments, which is another way of saying short term investments. If an investment firm has that much of its income coming from short term investments in a bear market while still making a profit, you will definitely have my vote of confidence.
With all these investment banks doing poorly, Bear Stearns collapsing and Lehman Brothers on the brink, you need to be buying the best company available. Goldman is our target here. As dumb as this sounds, you need to be buying the “best of breed”. If you look at my portfolio, I owned or currently own many “best of breed” companies such as Procter & Gamble (PG), Coca Cola (KO), Apple (AAPL) and Chevron (CVX) just to name a few.
I have said this many times in past articles I have written, but the housing crisis is like a gift from God where you are given the chance to buy great companies at a steep discount. Goldman Sachs is currently trading at $70 off of its 52 week high of $252.70. That is a 28% discount but I believe Goldman Sachs can drop into the 150-165 range due to this false spike in financials we have seen in the past two weeks. If this stock drops to 165 as I expect, this is a 34% discount off of its 52 week high to buy THE BEST investment bank in the world. Talk about a gift from God right? I read part a post from a thread on a sporting forum I talk on that stated:
“In 10 years I hope to look back at GS and relish the fact that I bought it when it got hammered during the great real estate collapse, and how it came back with a vengeance.” -T_Mo, PBN
How can you word it any better? I will be purchasing Goldman Sachs when it reaches the 150-165 range that I estimated. Shares need to be bought and continued to be bought with a “vengeance” on subsequent drops. Even if you start buying at the 165 level and the share price does not continue to decline, continue purchasing. I will continue to evaluate this stock and post updates into my personal portfolio, and you can follow my portfolio activity on this site if you subscribe to this blog. Perhaps I will start buying at a price above 165, but that is highly unlikely.
This graph below shows a one year comparison of Goldman Sachs to the average performance of financial companies in the spider index fund, which is an S&P 500 index fund. As you can see Goldman Sachs in outperforming by a huge margin. The second chart shows the one year chart of Goldman Sachs.
I am going to reiterate this one more time before I end this article but you are getting a chance to buy a top tier company at a huge discount. I thank you for your time and thanks for reading.
-Justin Moon, Senior writer for marketchasers.com