Here's Why it is Wise to Hold Onto Goldman (GS) Stock Now
Goldman Sachs (GS) is well-poised for growth on its sound liquidity, diversified product suite and steady capital deployment initiatives. Yet, rising...
The Goldman Sachs Group, Inc. GS can be a solid bet now, backed by its leading global position in the mergers and acquisitions space. The company’s strong client activity amid volatile markets is anticipated to yield positive results.
Organic growth, steady capital-deployment activities and business diversification continue to drive Goldman’s growth. However, litigation issues and the rising cost base remain concerns.
Solid capital position and business diversification have likely aided the company to gain 25% in the past six months compared with the industry’s growth of 14.2%.
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The company’s earnings estimates have also moved 17.6% and 2.3% upward for the current and next year, respectively, over the past 60 days. The stock carries a Zacks Rank #3 (Hold) at present.
While overall revenues were affected by volatile market conditions over the last few quarters, Goldman remains well positioned for growth, given its strong investment banking (IB) operations and a solid client franchise. IB revenues in the first six months of 2021 witnessed a significant jump on the back of stellar deal-making activities and strong equity markets. These, in turn, are likely to help the company capitalize on the improving environment.
The key source of the company’s earnings stability is its business diversification. Within traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks, which have exited some of these areas. Goldman has been undertaking initiatives to boost its business by launching a digital consumer lending platform and an automated wealth-management platform.
Driven by a solid capital position, Goldman consistently enhanced its shareholder value with steady capital-deployment activities. Following the announcement of the second round of 2020 stress test results, the company resumed share repurchases in first-quarter 2021, which were suspended following the coronavirus crisis. Share buybacks continued in second-quarter 2021 as well. This not only reflects the company’s commitment to return value to its shareholders but also its healthy position to endure severe economic downturns. Thus, given a solid liquidity position, favorable payout ratio and earnings strength, Goldman’s capital deployment activities seem sustainable.
Nonetheless, Goldman’s bottom line has been affected in the past few years by its rising cost base. Though expenses have been volatile for the past few years and declined significantly in 2016, higher compensation and litigation expenses continue to flare up. In January 2020, the company announced plans to reduce costs by $1.3 billion over a period of three years. However, continued investments in technology and a rise in transaction-based expenses during periods of higher client activity will keep the expense trend volatile.
Goldman has high dependence on overseas revenues as reflected in the last few years. A number of risks stemming from an unfavorable regulatory and political environment, adverse foreign-exchange fluctuations and the muted performance of the regional economy might hurt its top line.
Though the company settled certain litigations related to the sale of risky mortgage-backed securities, many of the cases are yet to be resolved. All these are expected to induce elevated expenses and litigation provisions in the near term.
Stocks to Consider
Piper Sandler Companies PIPR has witnessed upward earnings estimate revisions for 2021 over the past 30 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has surged 31.1% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evercore Inc.’s EVR current-year earnings estimate moved north in 60 days’ time. Shares of the company have gained 11.3% over the past six months. At present, it holds a Zacks Rank #2 (Buy).
JMP Group LLC JMP has witnessed an upward earnings estimate revision for the ongoing year in the past 30 days. This Zacks #2 Ranked stock has appreciated 33.7% over the past six months.
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