Goldman Sachs Group, Inc. GS can be a solid bet now on the back of its leading global position in completed mergers and acquisitions in the first nine months of 2016. The company’s strong client activity amid volatile markets is expected to yield positive results for the stock.
Further, the impending interest rate hike is likely to bring stability to top-line generation, which creates a buying opportunity for long-term horses. Regulatory probes are ongoing and litigation issues are resulting in elevated legal costs for Goldman. However, sharper focus on reducing expenses by reorganizing business and improving revenues is boosting the bottom line and making the growth path smoother.
With $880 billion in assets as of Sep 30, 2016, Goldman’s strengths include effective cost management, business diversification and steady capital deployment activities.
6 Reasons Why Goldman is a Must Buy
Prudent Expense Management: Goldman has benefited in the past few years from its successful expense-reduction initiatives. Further, expenses declined in the first nine months of 2016. Notably, the company completed an expense initiative during the first half of 2016, which translated into run rate expense savings of around $700 million.
Diversification: While overall revenues have been affected by unfavorable market conditions in the last few quarters, Goldman remains well positioned for growth, given its strong investment banking operations and solid client franchise. Within traditional banking, a diversified product portfolio has better chances of sustaining growth than many other banks. Notably, Goldman has been undertaking initiatives to boost the GS Bank’s business with its acquisition of the online deposit platform of GE Capital Bank in Apr 2016. Recently, it also launched a digital consumer lending platform – Marcus by Goldman Sachs. Additionally, the company is likely to benefit from its exposure to the fast growing exchange-traded funds (ETF) market.
Superior Return on Equity (ROE): Goldman’s ROE of 10.54%, as compared with the industry average of 9.44%, reflects the company’s commendable position over its peers.
Favorable Zacks Rank: Goldman currently carries a Zacks Rank #2 (Buy). This is driven by upward estimate revisions for the last 30 days. For 2016, the Zacks Consensus Estimate moved up around 2.0% to $15.33 per share and slightly to $17.85 per share for 2017.
Steady Capital Deployment: Goldman remains focused on managing capital levels efficiently. This is well evident from the approval of the 2016 Capital Plan. This plan includes increase in dividend, repurchase of common stock and a likely issuance and redemption of other capital securities. Such capital deployment activities are anticipated to boost investors’ confidence.
Stock is Undervalued: Goldman has a P/E ratio of 13.79x, compared to the industry average of 16.69x. Further, the company has a P/B ratio of 1.13x, compared to the industry average of 1.53x. Based on these ratios, the stock seems undervalued.
Organic growth, expense management, robust capital position and steady capital deployment activities continue to support Goldman’s growth prospects. In addition, business diversification remains a key strength for earnings stability.
Stocks to Consider
The Bank of New York Mellon Corporation BK has been witnessing upward estimate revisions for the last 60 days. So far this year, the company’s share price has been up more than 17.7%.
Comerica Incorporated CMA has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 47.6% so far this year.
Fifth Third Bancorp FITB has been recording upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 29.8% so far this year.
Notably, the above mentioned stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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