The big market news in the past week or so has all been centered on the shocking news that Goldman Sachs (GS) was being charged with fraud. Specifically, the Securities and Exchange Commission (SEC) is claiming the banking behemoth illegally structured and marketed debt products tied to subprime mortgages, which cost investors more than $1 billion. Goldman has strongly denied the government’s charges, but we’ll have to wait for more details to emerge before we’ll know for sure what really happened.
I surely don’t need to remind you that defaults on subprime mortgages and the unraveling of the derivatives business played a huge role in the credit crunch, the recession and how the markets got to the place they are at now. It has been a long road from the market lows, and while it may seem that the charges against Goldman are simply a drag on the market, the news should actually have two positive repercussions.
Goldman Sachs Good News, Part 1
Ever since the news broke about subprime mortgages and the markets started on their journeys to new lows, there has been outcry for justice. How was it that the financial system was so poorly run that the entire system and global economy could be brought to its knees? Why wasn’t there proper oversight that could have prevented this from happening?
Well that’s what the SEC is trying to rectify with its charges against Goldman. Now, while the markets’ reaction was to immediately head south, the long-term impact will ultimately be positive. Investors’ will finally feel that those responsible for the financial crisis will be held accountable and that checks and balances are in place so that they never have to experience a financial meltdown like this one again.
I believe that the government’s actions against Goldman signal a new trend in stiffer regulation of the financial services sector. This will be painful at first as dirty laundry is aired in the courts, but it will ultimately help the underlying strength of the system and investor confidence.
Goldman Sachs Good News, Part 2
Now for the really good news. I can’t help but think the timing of the charges against Goldman were strategically planned. We are, after all, just at the beginning of an earnings season that is expected to be one of the strongest on record. This strength will likely wash away the negative sentiment and painful reminders that the financial crisis has still not fully wound down. The timing comes at a point when the markets are most able to digest the news, and it provids a quick opportunity for smart investors to pick up shares in their favorite companies just ahead of earnings.
If you weren’t able to take advantage of this dip, there’s still a little more time before the window closes–but you’re going to have to act fast. Let me show you what I mean:
One of my favorite stocks of this earnings season just reported earnings, and the results were nothing short of spectacular. Intuitive Surgical, Inc. (ISRG), announced that its first-quarter profit TRIPLED on brisk sales of its robotic da Vinci surgical system. Net income for the three months ending March 31 rose to $85.3 million, or $2.12 per share, from $28.1 million, or 72 cents per share, in the same period a year earlier. This jump in earnings surprised analysts by 27%!
And this isn’t the end for ISRG. Gary Guthart, president and CEO of Intuitive Surgical, said that based on ISRG’s strong first-quarter results the company expects 2010 revenue to increase between 27% to 29%, up from its previous forecast for 25% growth. This means investors will likely to see strong earnings reports in the future from this company.
ISRG is just one example of companies that are surging this earnings season. In fact, there are many other companies reporting in the coming seven days that have the potential to have a breakout quarter just like ISRG.
As of this writing, Louis Navellier owned shares of ISRG in personal or client portfolios.
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