Goldman Sachs (GS)

IPO market has been pretty hot lately. This is now a commercial bank but, at heart, it is still an investment banking and trading firm. Investment banking is about 15% of their revenue, but has the potential to be much higher. There is a big pipeline of IPO offerings, probably the biggest since 2006.

Split? They used to split to make it easier for small investors to get in but that doesn’t matter now. Trading at 1.9 times book but not getting the results on their equity that allow for them to have this multiple. The confidence is not there.

Went into the Dow on a fairly modest valuation, which he finds intriguing. There is an ongoing recovery in the US banks. This has one of the smartest managements going. Yield of 1.23%.

This one bothers him a little bit. He has never been trustful of what they do with their balance sheets.

Has suffered off its previous 2008 highs but in the last year it has done very well. Recovering along with a lot of the banks. We still haven’t hit a capital markets cycle, which is unusual. Usually capital markets cycle and the M&A cycle is coincidental with the success of the market move. It will happen but not yet. This bank will be a prime recipient when it does.

Normally, at the top of their cycle, they will trade at around 1.5-1.75 times Book and right now they are trading right around Book. Two things could be catalysts for this company. 1.) The volatility we are starting to see re-enter the market is good because they are good at trading. 2.) We will very likely see a capital markets surge with acquisitions, etc.

Tremendous franchise in the investment banking space. His concern with all of the large, money centered banks is their inter-connection to the global financial system. He is not convinced that we are through with banking problems in Europe. Not wildly cheap right now but if it was he would look at it.

(Top Pick Apr 17/12, Up 25.88%) He sold and bought regional US banks for more substantial upside.

Thinks the stock is going to go lower. Trading revenues in the capitals market business are under pressure. This is a big player in the commodities space and commodities are under pressure at this time. There is a lot of negative sentiment against these US investments banks.

People hate this company because of how much they pay out in compensation but, the bottom line is that they are trading below book value. They are generating so much free cash flow Warren Buffett just gave his seal of approval. Company plans to buy back 80 million shares, which is over 15% of its market cap.

Normally does very well from January through until the end of April. Seem to have worked reasonably well this time but we are reaching the end of seasonal strength. Chart shows it has been struggling and has established a short-term downward trend in the last 2 weeks and is below its 20 day moving average and has started to underperform the S&P 500.

(A Top Pick March 21/12. Up 19.18%.) Had bought this when it was very depressed and it had run up so he got out of his position. Great company with a great franchise.

4.1% bond maturing November 2015. Issues like this from US banks, offer some extra spread over where our traditional Canadian banks would be issuing. These are issued in Cdn $’s so you don’t have to hedge it.

Has been a well managed company for a long time and it is in the right group. Have traditionally traded at fairly high prices because they had chunky earnings. The one thing he doesn’t like about them is that they are so tied to trading and investment banking. He would prefer something a little more integrated such as Citigroup (C-N). (Also see Top Picks.)

(Top Pick Feb 15/12, Up 35.68%) Sold it to buy regional banks which he thinks have more upside. M&A is taking off and Goldman is certainly going to be in the top 1, 2 or 3. It is a well run company and will continue to do well.