Goldman Sachs

GS-N

Well-run with earnings in the last report very good. Fine revenue growth as was investment banking. Fixed income fine. The Indonesian lawsuit is a concern, though. Trades at 10x earnings and slightly above book value. He loves it.

(A Top Pick Feb 06/18, Down 21%) They had stellar numbers in 2018 like 11% revenue growth and bought back 2% of its stock.. But they're by this Malaysian scandal, sued by their government by a huge amount and create a crisis of confidence--buy this will pass. GS recovered a bit in Q4. But he doesn't understand why this is trading at tangible book value. A wonderful franchise.

US banks didn't do well last year. First 3 quarters showed strength in global markets. Negative performance in client engagement. Corporate business OK. If you own 3 banks, sell 1 and diversify.

Price to book ratio play. Classically you buy it below book and sell it at 1.5-1.8X. Currently 0.86X price to book looks really tempting. They are not as susceptible to net interest margin, to the credit, to a number of factors that are going to hit banks. Much more focused business line, great wealth management, great asset management, great trading capital market and investment banking. But at the end of the day we are at the end of the cycle and now may not be the time to buy this.

He is not there for the financials and not warming up on them. He does not think rates are going much higher. He was short and covered.

Loves range-bound stocks, because they're so easy to trade. He was going to buy this, but didn't because it broke down early. Fundamentally, he likes it. $160-130 would be a target for the downside, and could bounce off that. If you already own, you're already 3/4 of the way through the damage.

They are trading at 67% of book value, but are also impacted by a fraud issue in Malaysia. There is fear that there may be more issues to company. An inexpensive stock now, but there may be better opportunities out there.

(A Top Pick Jul 24/18, Down 19%) Great company. Exceptionally profitable. Trading at 7 and 1/2 normalized earnings. Once they get over the big scandal. That will cost them $2 billion and they made $13 billion last year in profits. The best company in taking advantage of dysfunctional markets in the world. Global leader in investment banking. Pristine balance sheet. Good value. Just added to his position.

Brokerages are more volatile than banks or insurance companies, because they rely so much on capital markets. In the late-cycle, there's a lot of general uncertainty. If you want exposure to the U.S. financial sector, buy a bank of lifeco which are more stable.

Corruption in Asia has triggered a sell-off. He prefers TD, and owns no US banks. (TD operates in the US.) If they can't shake off these corruption charges, then GS will be in the penalty box for a while

You should expect them to boost reserves from the fallout of the Malaysian issue. It is at the lower end of the trading range but you want to see the smoke clear. He would wait on this one until you see the resumption of the trend.

Issue in Malaysia, which will cost them money. In grand scheme of things, with all their earnings, won't amount to much. Premier global investment bank, good valuation, whole sector is on sale. You need to buy great businesses when they're on sale.

Morgan Stanley vs. Goldman Sachs They're similar--they're in investment banking, but he prefers MS with its cheaper valuation with steadier earnings growth and less earnings volatility. Goldman is more into investment banking which is vulnerable to a market downturn, thus a little more volatile. Overall, he is light U.S. banks: there's slower loan growth and the cost of loaning money has risen along with interest rates. Analysts have been too optimistic about American banks' earnings growth going forward.

Positive on the name. Whenever anything happens in the financial space, Goldman is there. Has more torque than a traditional bank, as its earnings are a bit more leveraged. Keeping money to grow the business instead of returning it to shareholders, a positive. Conservative on loan reserves. Would be looking to add, not exit.

C-N vs GS-N He likes American banks. CITI peaked at the start of 2018 and is now drifting lower. Their uptrend from 2016-2018 could repeat. This could fall back to the $60 level of resistance. Goldman (GS-N) has a similar chart, but its drop this year had been more severe. Their support level is strong at $200 (it's been tested many times). GS-N is less risky.