GS - Goldman Sachs

[alertmeipp]

>>struggling ROE wise.

 

Agree, but they got a nice wealthy management business now so I think they will have better upside than GS.

[jeffmori7]

With BAC advancing 170% in less than 2 years and eliminating most of the "BAC discount", I think it makes sense to look at higher quality banks. In particular GS trades at a lower price to tangible book compared to BAC.

 

See attached.

 

Note, this chart shows simple trailing ROE. BAC and C normalized ROEs will be higher, but still less than GS, PNC and JPM.

 

But still, there is lot of place for improvement in ROE for BAC...so you have to choose between improvement in the business for BAC against a multiple expansion for GS, what do you choose here?

[constructive]

But still, there is lot of place for improvement in ROE for BAC...so you have to choose between improvement in the business for BAC against a multiple expansion for GS, what do you choose here?

 

I think most large banks will deliver business improvement and multiple expansion. I prefer the multiple expansion thesis because that can happen immediately - business improvement takes time and work and is uncertain.

 

If BAC earns 8% ROE (or 10% ROTE) and the P/TB multiple moves to trendline over the next two years that might be a 45% return.

 

If GS earns 13% ROE and the P/TB multiple moves to trendline over the next two years, that might be a 120% return.

 

Of course there is the argument that investment banking is more cyclical than consumer banking and deserves a lower multiple.

[doughishere]

Has anyone looked at GS. Does anyone have a clue......I have no position and dont intend to purchase anything but it seems awe full interesting. Tips, hints, thoughts? Peek Goldman hate?

 

 

A lot of people dont like the I Banks....too complicated....Buffet seems able to value it....so I have to think its possible.

[Ballinvarosig Investors]

I bought some last month, I will buy more if I can get it below $150.We live in strange times. On one hand, you have hated financial stocks that are trading a bit below book value (Goldman) or massively below book value (Bank of America) thanks to worries about the economy, the low interest rates, depressed earmongs. and the awful investment banking environment. On the other hand, you have consumer staples and defensive stocks that never go down like Coca Cola, Johnson & Johnson, Kraft, etc. trading at dizzying heights of 25x/30x FCF/earnings. Looking at the valuations, you'd swear that companies will never again get involved in M&A, issue debt, or that things like block trading, prop trading, etc. are activities that no one will ever make money from again. Really, the only way you could think that investment banks are dead is if you believe that greed on Wall Street is dead in its grave.

[doughishere]

I bought some last month, I will buy more if I can get it below $150.We live in strange times. On one hand, you have hated financial stocks that are trading a bit below book value (Goldman) or massively below book value (Bank of America) thanks to worries about the economy, the low interest rates, depressed earmongs. and the awful investment banking environment. On the other hand, you have consumer staples and defensive stocks that never go down like Coca Cola, Johnson & Johnson, Kraft, etc. trading at dizzying heights of 25x/30x FCF/earnings. Looking at the valuations, you'd swear that companies will never again get involved in M&A, issue debt, or that things like block trading, prop trading, etc. are activities that no one will ever make money from again. Really, the only way you could think that investment banks are dead is if you believe that greed on Wall Street is dead in its grave.

 

My initial sense is that people aren't sure about the derivative books. And if you got guys like WEB going on record as saying that they are really hard to make sense of...then I'm pretty sure most people think it's really hard. I think there may be opportunity in that fact alone.

 

 

That being said I look for the hardest shit out there and immediately pick that to do so well see.....at bare minimum if I'm going to make this my career it's better to know who you are dealing with.

 

Aldo I just have this nagging feeling like the banks are always going to have their hands in bubbles, like a new born baby it just happens all the time, so i think it's smart to always keep an eye on them.

 

 

 

[treasurehunt]

Has anyone looked at GS. Does anyone have a clue......I have no position and dont intend to purchase anything but it seems awe full interesting. Tips, hints, thoughts? Peek Goldman hate?

 

 

A lot of people dont like the I Banks....too complicated....Buffet seems able to value it....so I have to think its possible.

I do have a fairly large position in Goldman stock. The macro environment has been pretty unkind to investment banking for a while now, I think. GS has suffered from this. Also, they have had to make a lot of changes to their business model post-crisis and that has been a difficult process as well. Many analysts and investors seem frustrated that progress has been tediously slow, which perhaps explains the low price of the stock.

 

My investment is based in large part on faith in the management and people of Goldman. I think chances are high that they will reposition the business to earn decent returns on capital. In the last three or four years, Goldman has been earning around 11% on tangible common equity (ignoring exceptional legal charges). Management has been clear in conference calls that they consider 11% sub-par. Given that the stock is trading right at tangible book value, even if return on equity does not improve, buying now should provide around 11% returns.

 

I guess the risk is that the GS business model is somehow fundamentally broken and management will fail in transforming it to earn decent returns. I am okay with taking this risk considering the history of the company and my sense of the quality of its people. It's hard to know how long this period of mediocre returns might last. But GS is buying back a lot of stock at cheap valuations, so I am not complaining.

 

[KCLarkin]

Has anyone looked at GS. Does anyone have a clue......I have no position and dont intend to purchase anything but it seems awe full interesting. Tips, hints, thoughts? Peek Goldman hate?

 

A lot of people dont like the I Banks....too complicated....Buffet seems able to value it....so I have to think its possible.

 

A lot of people don't like I-Banks, including Buffet, because the people is the moat. There are at least three issues:

- Most of the economic returns accrue to the employees

- Your moat can walk across the street to a competitor

- I-bankers are incentivized to hit their bonuses not maximize shareholder returns

 

If investment bankers earned the same as bank tellers, GS ROE would be superb.

 

 

[doughishere]

GS in VII.

 

Ed Wachenheim  Greenhaven Associates - p. 16

 

http://www.valueinvestorinsight.com/pdfs/TrialAPR2016.PDF

[doughishere]

Great moments in Financial Engineering. Today's example:Series B, Callable Index-Linked Notes due 2003 ( Linked to the GSTI Internet Index)

 

https://en.m.wikipedia.org/wiki/GSTI_Software_Index

[doughishere]

Apparently my mind wasn't. Whitney Tils wrote I somewhere they are Kase Capital I think now.

[Jurgis]

I think I read that T2 was deep into Goldman.

 

Terminator 2 is Goldman.  8)

 

 

 

 

Oh wait, that's probably not what you meant...

 

 

I'll be back.

[doughishere]

http://www.cnbc.com/2016/06/05/goldman-sachs-attracts-250000-student-job-applications.html

[John Hjorth]

The Telegraph - Business - Lucy Burton [November 17^th 2018] : Goldman Sachs tells London staff: We'll pay for sex change surgery and IVF.

 

It reads a bit desperate, almost convulsive, to me. I wonder how this will actually work out. I'm actually not sure I understand it at all! [ : - ) ]

[Mephistopheles]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

[peridotcapital]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

 

Also buying here, but TBV is $186/share, so about 96% of TBV at current quote. Hard to understand why GS should not trade at 1.25-1.50x over the course of a normal cycle, with ROE getting into the mid teens now.

[Libs]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

 

Also buying here, but TBV is $186/share, so about 96% of TBV at current quote. Hard to understand why GS should not trade at 1.25-1.50x over the course of a normal cycle, with ROE getting into the mid teens now.

 

I've been buying. You used to have to slave away for 20 years at GS to make partner so you could buy the stock at BV. But we can do it by pushing a button.

 

Granted, the 25% ROE days are gone forever, but this is still a good price.

[Mephistopheles]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

 

Also buying here, but TBV is $186/share, so about 96% of TBV at current quote. Hard to understand why GS should not trade at 1.25-1.50x over the course of a normal cycle, with ROE getting into the mid teens now.

 

Hi peridot, just wanted to check the numbers, where did you get $186 for TBV? From the last Q, Equity is $86 billion, and goodwill/intangibles is $4 billion. Divided by 391 million diluted shares outstanding is $210/share. Today's price of $180 makes it 85% of that number.

[no_free_lunch]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

 

Also buying here, but TBV is $186/share, so about 96% of TBV at current quote. Hard to understand why GS should not trade at 1.25-1.50x over the course of a normal cycle, with ROE getting into the mid teens now.

 

Hi peridot, just wanted to check the numbers, where did you get $186 for TBV? From the last Q, Equity is $86 billion, and goodwill/intangibles is $4 billion. Divided by 391 million diluted shares outstanding is $210/share. Today's price of $180 makes it 85% of that number.

 

$11B in preferred shares?  I believe these need to be deducted.

[Mephistopheles]

I'm buying here at 85% of tangible book value and like 7-8x earnings. The premier investment bank, best of breed. Top notch risk management, most desired place to work if you're going into trading or banking. Anyone else looking at this?

 

Also buying here, but TBV is $186/share, so about 96% of TBV at current quote. Hard to understand why GS should not trade at 1.25-1.50x over the course of a normal cycle, with ROE getting into the mid teens now.

 

Hi peridot, just wanted to check the numbers, where did you get $186 for TBV? From the last Q, Equity is $86 billion, and goodwill/intangibles is $4 billion. Divided by 391 million diluted shares outstanding is $210/share. Today's price of $180 makes it 85% of that number.

 

$11B in preferred shares?  I believe these need to be deducted.

 

That's an embarrassing overlook on my part. Thank you

[Spekulatius]

The tangible book value is spelled out in the financial supplement from the last quarterly report. And yes the preferred count as equity, but needs be subtracted when like looking at the equity. I agree that GS is worth more than tangible book and have purchased the stock accordingly.

[no_free_lunch]

Thanks for bringing this one up.  I will look at it over the weekend.  Unlike most of the financial stocks this one has done quite well when you look at bvps growth.  Looks like they quadrupled bvps since 2004.

[Viking]

The tangible book value is spelled out in the financial supplement from the last quarterly report. And yes the preferred count as equity, but needs be subtracted when like looking at the equity. I agree that GS is worth more than tangible book and have purchased the stock accordingly.

 

Spekulatius, how are you thinking about 1MDB issue?

 

I wonder if a good way to play this type of situation is to dedicated 10% of portfolio to companies with short term issues (short term defined as 1-2 years to fix). Call it the ‘shit storm mutual fund’. Over time buy 1% positions in 10 different companies. Facebook looks like a solid second candidate (early in the process). WFC would be a third (late in the process).

[Spekulatius]

The tangible book value is spelled out in the financial supplement from the last quarterly report. And yes the preferred count as equity, but needs be subtracted when like looking at the equity. I agree that GS is worth more than tangible book and have purchased the stock accordingly.

 

Spekulatius, how are you thinking about 1MDB issue?

 

I wonder if a good way to play this type of situation is to dedicated 10% of portfolio to companies with short term issues (short term defined as 1-2 years to fix). Call it the ‘shit storm mutual fund’. Over time buy 1% positions in 10 different companies. Facebook looks like a solid second candidate (early in the process). WFC would be a third (late in the process).

 

I think the 1 MDB issue is more of a newsflow/reputations issue than a financial one. cost may be $1-2B, which is a quarter worth of earnings max. I could be wrong, of course, but I would be surprised if it were financially damaging.

 

I own both FB and GS and each position is much higher than 1%.

[steph]

I also bought GS at 190 last week.  It is way too cheap unless we return in a financial crisis such as 2008, which I don’t believe.

Last year when volatility was extremely low, people didn’t like GS because they need more volatility to have higher trading income.  Now volatility is back and they still don’t like it.

The Malaysian story is a golden opportunity to buy this great company and put it away for some years.