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Why You Should Add Goldman (GS) Stock to Your Basket Now?


The Goldman Sachs Group, Inc. GS can be a solid bet now on the back of its leading global position in completed mergers and acquisitions so far, this year. The company’s strong client activity amid volatile markets is predicted to yield positive results for the stock.

Further, the expected interest rate hike in December is anticipated to stabilize the top line. This, in turn, is likely to attract long-term investors. Regulatory probes and litigation issues have been escalating 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.

Therefore, at present, it’s a good idea to add stocks with robust fundamentals and long-term growth opportunities to your portfolio.

With $930 billion in assets as of Sep 30, 2017, Goldman’s strengths include effective cost management, business diversification and steady capital deployment activities.

8 Reasons Why Goldman is a Must Buy

Revenue Growth: Goldman continues to make steady progress toward improving its top line. The company’s projected sales growth (F1/F0) of 4.56% (as against the nil industry average) indicates constant upward momentum in revenues.

Earnings Per Share Strength: Earnings are anticipated to display an upswing in the near term, as the company’s projected EPS growth (F1/F0) is 16.81% compared to the S&P 500 average rate of 9.75%. In addition to this, Goldman recorded an average positive earnings surprise of 9.12%, over the trailing four quarters.

Prudent Expense Management: Goldman has been benefiting from its successful expense-reduction initiatives for the past several years. Though expenses have witnessed a volatile trend in the last few years, the figure declined significantly in 2016. Notably, the company carried out an expense initiative during the first half of 2016, which translated into run-rate expense savings of around $700 million. It continued this initiative in the second half of 2016 as well, and generated nearly $900 million of run-rate savings. The company is focused on improving its efficiency while maintaining strong franchise and investing in new opportunities.

Diversification: While overall revenues have been affected by unfavorable market conditions in the last few quarters, Goldman remains well positioned for growth, backed by its sound investment banking operations and solid client franchise. In traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks.

Notably, Goldman has been undertaking initiatives to fortify the GS Bank’s business by acquiring the online deposit platform of GE Capital Bank in April 2016. 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.

Favorable Zacks Rank: Goldman currently carries a Zacks Rank #2 (Buy). This has been driven by upward estimate revisions for the last 30 days. For 2017, the Zacks Consensus Estimate moved up around 4.3% to $19.03 and 1.7% to $20.55 for 2018.

Steady Capital Deployment: Goldman remains focused on managing its capital levels efficiently and has consistently enhanced shareholders’ value with steady capital deployment activities. The company’s 2017 capital plan won regulatory approval that includes share buybacks and an increase in its quarterly common stock dividend, along with the issuance and redemption of other capital securities. In April 2017, the company increased its common stock dividend by 15.4%.

Stock is Undervalued: Goldman has a P/E ratio of 12.84 compared to the industry average of 17.44. Further, the company has a P/B ratio of 1.27 compared to the industry average of 1.8. Based on these ratios, the stock seems undervalued.

Share Price Movement: Goldman’s shares gained 8.2% over the last six months compared with 12.8% growth recorded by the industry.

Bottom Line

Organic growth, expense management, robust capital position and steady capital deployment activities continue to support Goldman’s growth opportunities. Furthermore, business diversification remains a key strength for earnings stability.

Stocks to Consider

Enterprise Financial Services Corporation EFSC has been witnessing upward estimate revisions for the last 30 days. Additionally, the stock jumped more than 31% over the past year. It currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Financial Bancorp FFBC has been witnessing upward estimate revisions for the past month. Also, the company’s shares have risen nearly 26% in a year’s time. It holds a Zacks Rank of 2, at present.

Chemical Financial Corporation CHFC has been witnessing upward estimate revisions for the past 60 days. In six months’ time, the company’s share price has been up more than 7%. It also carries a Zacks Rank of 2.

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