Goldman Sachs (GS)

A top investment bank in the world. New CEO needs to talk about the company more, but investment banks should do well in volatility. What's hurt Goldman is that its retail side if weak and are only now slowly going into that area and seeing decent growth. Beware: there's a lot of volatility in investment banking and they don't have retail to fall back on. A good brand to own.

This is the premier global investment bank. They are the best run bank in this space. They were not damaged in the financial crisis. But Goldman Sachs has suffered along with the other large banks. Investors have the chance to buy it now near 11 times current earnings and perhaps 9 times next year’s earnings. They are the only major investment bank that has fewer shares outstanding now than before the financial crisis. It continues to use its free cash flow to buy back shares. Fewer large banks are involved in trading activities, and margins for Goldman Sachs’ trading continue to be very strong. Goldman has a new CEO, which causes some concern. However, Goldman has a great track record with management transitions; he expects this to go well. Yield 01.4%. (Analysts’ price target $273.72)

(Past Top Pick, June 14, 2017, Up 3%) His favourite US bank is Goldman Sachs. Trading at 10x earnings, at a discount to its peers; their earnings should grow 15%. They follow a well-diversified model. They won't increase share buybacks or capital, because they need the cash because they are growing so fast. Pays a dividend of 1.4%. They make money in difficult times. US banks as a whole have been stuck the past well, but GS has been doing everything right.

When interest rates rise, banks raise their lending rates faster than the deposit rate. Their margins increase. GS has made their money on underwriting and proprietary trading. Inexpensive stock at less than 10x earnings.

Goldman Sachs is an incredible franchise, not expensive as it trades at slightly above book value and a low PE. GS stayed with fixed income whereas other investment banks cut back aggressively, because this area drained capital and reduced ROE. GS is one of the top investment banks.

(A Top Pick May 24, 2017. Up 4%). This company is doing well but it disappointed investors when it didn’t announce buybacks in its last earnings call. He thinks Goldman is acting responsibly and putting its money to work on growth. Late cycle business activity includes a lot of mergers and acquisitions, which Goldman Sachs will benefit from. They are also continuing to grow their bank and earning good returns. The growth rate from investing their cash flow in this is better than investors would get from dividends and buybacks. He is buying the company on its dip, expecting the stock to rise as interest rates rise.

They just bought some more today. Trading at 10 times earnings. Their capital markets business is booming. Very smart investment bankers. (Analysts’ price target is $272.77)

They have gone full throttle in the riskier business of trading derivatives. They are the only one of the big banks going full throttle. They have fewer shares outstanding than before the financial crisis.

He sold Goldman Sachs and bought Morgan Stanley less than a year ago. Goldman had fixed-income problems whereas Morgan Stanley developed a successful wealth management business, benefitting from lots of trading volume these days.

Trading at only 12x earnings. While other Wall St. banks have reduced traded derivatives, Goldman hasn't. A huge opportunity. Margins will increase in this area, because of less competition. The number-one investment bank in the world, benefitting huge from European M&A. Expects 50% earnings growth in three years. (Analysts' price target $270.63)

He's positive on more M&A in U.S. banks given de-regulation. Expects lots of activity, like expanding banking services.