Goldman Sachs Group Inc (GS) — GS stock was one of the Dow’s biggest losers Monday, falling 1.3%, but shares look to be nearing a buy point.
I consider Goldman Sachs to be an ideal purchase in the investment banking and securities industry, which should benefit from future interest rate increases that will widen profit margins.
I’m not alone in this bullish view. Analysts at S&P Capital IQ Equity Research rate GS stock a “Buy” with a 12-month price target of $197.
They note Goldman has the highest revenue concentration to capital markets among its peers and expect revenues to increase 4% this year after falling 2% in 2015. As revenues rebound, they forecast operating margins will expand from about 31% in 2015 to 33% in 2016 and 36% in 2017. Furthermore, its analysts believe Goldman can capitalize on the fact that a number of European banks are shrinking their global investment banking franchises, leaving market share up for grabs.
Turning to the chart, GS stock fell from a high just below $219 in June to about $139 in mid-February before forming a double-bottom that was followed by a tight bull channel. The recovery was preceded by a buy signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR), and accompanied by an increase in buyers.
MACD is currently on a buy signal that was triggered when GS stock slashed through its 50-day moving average, now at $154.
My recommendation is for traders to buy GS stock either on a pullback to $154 or a breakout from the bull channel’s high at $160. The trading target is $180, which would result in a gain of at least 12%.
Investors should also consider buying GS stock for the chance at even greater long-term gains, as well as income. The company pays an annual dividend of $2.60 per share for a forward yield of 1.6%.
