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Favorite Banker? Goldman Sachs
06/16/2015 7:00 am EST
Bearish commentators are going on about negative first-quarter GDP growth. But that is history. The stock market looks forward, not back. And the outlook for the second half is promising, argues Mark Skousen, editor of Private Equity Trader.
What should you invest in next? By far, my favorite investment banker today is Goldman Sachs Group (GS). Based in New York—I’ve been to their massive offices on 200 West Street many times—it continues to be the gold standard of Wall Street banks.
It has a gigantic institutional equity trading desk, a solid debt and derivatives business, an ultra-high-net-worth clientele, top investment banking, and capital markets expertise. The bank is one of the most sought after in the world and is particular about its clientele.
In investment banking, Goldman Sachs has the preeminent client franchise. Goldman Sachs advised on more than $1 trillion of announced transactions last year to reach its highest level since 2007.
It has also maintained a leading market share during the past 25 years. It maintained a market position when M&A activity was dominated by technology in 1999, by financials in 2008, and by natural resources in 2014.
During the financial crisis, it had its share of problems and had to take a $10 billion investment from Warren Buffett. But it never cut its dividend. To this day, it still offers a rising dividend policy and just raised its quarterly dividend to 65 cents a share.
The company is still growing, with revenues up 14% in the past year to $35.8 billion, and earnings growing even faster, up 40% to $8.9 billion.
Goldman looks solid. It has a return on equity (ROE) of 11.3% and $711 billion in cash, almost double what is necessary to pay off its long-term debt of $388 billion.
The company’s stock price of more than $200 a share appears high but it is still selling for only 10-11 times earnings.
Buy Goldman Sachs at market today and set a protective stop of $170 a share. For those of you who are more willing to take risks, consider buying the October $230 call options.
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