Goldman Sachs Group Inc (GS) Stock Is a Buy … At a Lower Price

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One of the biggest open secrets on Wall Street is that analysts are paid to feed ideas into their firm’s proprietary trading desk as well as share those ideas with clients in the form of research, and Goldman Sachs Group Inc (NYSE:GS) has one of the best idea generation engines ever created.

Goldman Sachs Group Inc (GS) Stock Is a Buy … At a Lower PriceNow that GS stock opened up its proprietary trading systems to clients as well, it’s starting to look like trading profits can now scale beyond the company’s ability to sign clients and gather assets.

In other words, Goldman Sachs is now a proprietary trading desk that anyone willing to pay the fees can trade alongside. This means the profit power of the company’s trading ideas can extend far beyond the range of the firm’s internal pool of assets.

You can think of it as a “virtual” portfolio, where client money can work just as hard as the house bets. Smaller traders who needed access to better algorithms and risk systems now have a bigger incentive to make sure they’re on the Goldman platform.

GS stock doesn’t even need the assets under its umbrella — as long as the clients keep paying their fees, the revenue stacks up even faster and at better margins.

That’s the sizzle driving shares right now.

Why I’m Bullish on GS Stock

Every investor needs to reckon with the fact that interest rates may climb faster under President-elect Trump than they would have otherwise. Trump has stated that he wants an active Federal Reserve. As such, while we were probably going to see a token rate hike next month, the futures curve now anticipates more aggressive tightening in 2017 and beyond. That’s a windfall for GS and any company that holds a lot of client cash, earning overnight interest at market rates all the time.

There’s also good news in that if some of the recent megadeals — including Qualcomm, Inc.‘s (NASDAQ:QCOM) acquisition of NXP Semiconductors NV (NASDAQ:NXPI) and AT&T Inc.‘s (NYSE:T) buyout of Time Warner Inc (NYSE:TWX) — represent any sort of trend, it should be a boon for Goldman’s mergers and acquisitions business.

Add up these factors and I think GS stock can reach for the sky in the long term. The only real question is when to buy in.

Response to the recent earnings report was extremely bullish: earnings of $4.88 a share easily beat expectations of $3.82 a share, so GS stock actually looked cheap at that point. But the post-election rally we’ve seen leaves immediate value looking a little stretched.

We have two months left before the next earnings release, which is plenty of time to be patient before the next catalyst changes the multiples here. It’s also plenty of time for global developments to roil the markets and take GS down a few pegs.

GS stock was trading hands at $172 before earnings. Odds are good investors will get a chance to enter closer to that price before the bar resets at a higher level next year.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/11/goldman-sachs-gs-stock-price/.

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