I was a fan of Goldman Sachs Group Inc (NYSE:GS) well before the firm went public a couple of decades ago. This is where some of the best brains on Wall Street have always gathered to maximize profit for clients, themselves and ultimately shareholders. I believe these are the people with the best ideas, the most sophisticated trading systems and the biggest reservoirs of strategic discipline.
While the company’s growth ramp hasn’t always pointed straight up, it has remained on a firm rising path through boom and bust alike. Investors who bought GS when it first went public back in 1999 have multiplied their starting stake close to 400% while cashing regular dividends every quarter. Even in the depths of the credit crunch, the payout never retreated and the yield almost never got above 1.7%.
That’s a testament to the stock’s mystique and management’s acumen. They’ve never needed to offer more cash in order to keep the shares moving.
But even at an implied yield closer to 1% right now, GS is still worth accumulating on the dips. This is a stock that’s spent most of its life within reach of record territory, so it isn’t alarming to see it up 80% since last June.
Now that the rally has finally and decisively breached the 2007 limits, it’s time once again to see how far this stock can climb. From an upside perspective, this is the best time to buy GS in over a decade now that the last technical overhang from the 2008 crash has resolved. It’s time for management to get back to work building the future of Wall Street.
Building the Future of Wall Street
The company has invested in the cutting-edge technologies that have the best and brightest chance of transforming the financial industry. GS is a leader in applying the promise of blockchain (the system behind bitcoin and other cryptocurrencies) to address real-world business needs. Whether it’s rolling out new financial technologies or coming up with new models for delivering world-class investment research and trading models, odds are good GS will reap the rewards before other investment banks even see the wave coming.
And it’s that attention to innovation that translates into a solid and more sustainable return on capital.
While other Wall Street giants wobble from quarter to quarter on trading volumes and interest rates, GS keeps building on internal momentum to support long-term growth targets north of 20% per year.
The recent $5 billion hit on earnings reflects the one-time impact of the new tax rules rippling through the way the accountants measure the firm’s assets and liabilities. On an operating basis, I’d rather be here than in Morgan Stanley (NYSE:MS) or JPMorgan Chase & Co. (NYSE:JPM). Now that the hit is behind the company, it’s time for GS to stretch its muscles and reach for the big sky that’s been denied to shareholders since 2007.
At barely 1.3X book value and a 1% dividend yield, the stock is still cheap by historical standards, but that may not be the case for long.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.