Headquartered in New York, Goldman Sachs (GS) is one of the largest financial institutions in the U.S. I am bullish on the stock.
Market rotation can be scary sometimes, especially when it causes certain groups of stocks to pull back. Yet, rotation is normal and the cycles offer opportunities for value-focused investors.
Lately, financial-market traders have soured on big banks. Goldman Sachs is among the biggest ones, and it’s been an easy target for bear raids and profit taking. Does this mean that the company is actually in trouble, though?
Not at all. If you’re serious about adopting a “buy low, sell high” investment strategy in rock-solid businesses, then there’s a prime opportunity to grab shares of Goldman Sachs stock right now at a surprisingly low valuation.
Value
If there’s any company that you can buy shares of and sleep soundly at night, it’s mega-bank Goldman Sachs. We’re talking about a company with a $110-billion market capitalization here. This company has withstood the 1970s bear market, the financial crisis of 2008 to 2009, the COVID-19 crisis — you name it, Goldman Sachs has survived it.
In other words, it’s pointless to lose sleep just because GS stock has come down from $425 to the $320s. Psychologically, the hardest part of the “buy low, sell high” formula is “buy low,” but contrarians have to be willing to buy during peak pessimism.
If anything, the share-price drawdown is a gift from the market. Because of the pullback in GS stock, Goldman Sachs now has a trailing 12-month price-to-earnings (P/E) ratio of 6.2. That’s a number which should get contrarians and value hunters excited.
Meanwhile, Goldman Sachs remains a yield king with a forward annual dividend yield of 2.5%. Among the best long-term strategies is to sit back and collect those dividend distributions each quarter, and reinvest them into more GS shares as soon as possible.
That being said, it’s reasonable for prospective investors to ask, “How did Goldman Sachs stock get so cheap?”
It’s not due to a specific problem with the company, but a macro-environment issue that’s causing some anxiety on Wall Street in 2022.
Normal Friction
The prospect of a series of interest-rate hikes might have some experts on Wall Street worried about financial-sector stocks this year. However, JMP Securities Director of Financial Technology Research Devin Ryan doesn’t seem to be excessively concerned about the future of GS stock.
Indeed, Ryan appears to see a bargain now that the share price has come down. “The bar was high, heading into the year when the stock was around $400. Now at $320, I think investors will do quite well,” he suggested.
It certainly sounds like Ryan is envisioning a bargain-hunting opportunity with Goldman Sachs stock at its current price point. The analyst seemed to imply that the U.S. economy isn’t in shambles, as the nation’s unemployment rate is ultra-low at 3.6% and the “consumer is in a great spot.”
That’s good news for Goldman Sachs, as a strong economy encourages the borrowing and lending activity which is big banks’ bread and butter. On the other hand, some traders might hesitate to buy GS stock because they’re expecting the Federal Reserve to increase the cost of borrowing money.
That’s a concern, no doubt, but Ryan is evidently adopting a “This, too, shall pass” attitude about this issue. While acknowledging that “there could be a little bit of disruption here on the corporate side, with the cost of capital moving higher with rates,” Ryan added, “that can create a little bit of friction, but this is kind of normal friction. And I think we get on the other side of it.”
Firm Financials
Ryan’s calm, cool and collected attitude about interest-rate raises may help investors who are skittish about Goldman Sachs stock. Yet, we really shouldn’t be calm unless Goldman Sachs can prove that it’s financially on solid ground.
The good news is that Goldman Sachs, judging by the company’s first-quarter 2022 data, is doing just fine. For one thing, Goldman Sachs generated $12.93 billion in net revenue during the quarter, up 2% sequentially.
What about the company’s bottom-line results, though? There’s positive news to report in that area, as well, since Goldman Sachs posted diluted earnings per common share of $10.76 for 2022’s first quarter.
This result handily beat the consensus estimate of $8.90 per share, provided by FactSet. Consequently, skittish investors can relax, knowing the Goldman Sachs has a firm financial foundation.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, GS is a Moderate Buy, based on eight Buy and five Hold ratings. The average Goldman Sachs price target is $428.08, implying 31.7% upside potential.
Takeaway
Wall Street’s experts don’t seem eager to sell Goldman Sachs stock, and Ryan’s analysis suggests that persistent worries about interest-rate hikes may be overblown.
Furthermore, GS stock is trading at a very reasonable valuation and Goldman Sachs continues to pay out a generous dividend.
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