Goldman Sachs Nearly PERFECT in Q1, But …

by Jeff Reeves | May 11, 2012 8:29 am

So I kick around the so-called “smart money” a lot, deriding the fact that Wall Street stock analysts get it wrong more than they get it right[1] and calling out the fact that 84% of active managers lagged the market in 2012[2].

But I have to give credit where credit is due. Goldman Sachs (NYSE:GS[3]) logged a nearly perfect quarter, according the a recent filing from the investment bank with the SEC. According to a 10-Q filed on April 27[4], Goldman Sachs scored gains in every single trading day of the first quarter, save one.

In case you don’t want to wade through this 10-Q, the juicy details are on page 156 and contained in this handy-dandy chart:

GS10Q1 Goldman Sachs Nearly PERFECT in Q1, But ...

As you can see, there was a single daily trading loss, which was between zero and -$25 million. And GS traders logged a host of excellent days on 24 out of the 62 trading days in Q1 — about 39% of the time, they raked in more than $100 million in trading revenue in a single session.

Of course, the biggest trouble was that Goldman Sachs investment revenue actually declined year over year — with total first-quarter revenue down about 26% in the first quarter for GS, thanks in part to sovereign debt woes in Europe putting a damper on dealmaking that had generated big fees in 2011.

This overall decline, however, is not just a Goldman problem. JPMorgan Chase (NYSE:JPM[5]) suffered a 52% decline investment banking when JPM reported earnings back in January[6]. JPM admittedly saw investment banking revenue strengthen in its April report; however, there is no doubt that trading revenues have dried up in recent years and the looming threat of the Volcker rule means the fate of investment banking is anything but secure.

So what’s the bottom line? Is Goldman a buy after this great quarter, and after a very nice 19% run year-to-date in 2012 from its lows late last year?

My two cents: Don’t chase Goldman Sachs. Shares are indeed up from the mid-$80s in January to the mid-$100 range currently. However, they remain considerably off levels of around $150 at this time in 2011 and even higher in 2010 and late 2009. The fact is a harsher regulatory environment and growing populist backlash have made it difficult for this financial stock to operate as it did before the financial crisis.

Oh yeah, and let’s not forget that while things are better, there still are many troubles in the investment world — from paltry bond yields to the risk of sovereign debt defaults to fewer big-time deals or IPOs that generate fees for players like GS.

So Goldman Sachs might not have logged many losses in the first quarter — but its successes are smaller than they once were, and there is doubt about how high the ceiling will be on gains going forward.

Consider that total revenues look like this:

In short, Goldman Sachs might not be striking out — but that doesn’t mean it’s hitting any home runs.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[7] Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.

Endnotes:
  1. stock analysts get it wrong more than they get it right: http://investorplace.com/2012/05/screw-wall-street-analysts-and-their-perpetually-wrong-targets/
  2. 84% of active managers lagged the market in 2012: http://www.etftrends.com/2012/03/active-fund-managers-trailed-benchmarks-badly-in-2011/
  3. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  4. 10-Q filed on April 27: http://www.sec.gov/Archives/edgar/data/886982/000119312512222707/d330759d10q.htm
  5. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  6. JPM reported earnings back in January: http://investorplace.com/2012/01/jpmorgan-earnings-another-red-flag-for-bank-stocks/
  7. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/dp/B007KB9CSI/ref=rdr_kindle_ext_tmb

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