Flying under most investors’ radars, Goldman Sachs Group (NYSE:GS) has been quietly making new highs, and it doesn’t look like Goldman Sachs stock has any intention of stopping.
While financials have not exactly been the apple of the market’s eye given the Federal Reserve’s dovish stance, it is worth noting that the Financial Select Sector SPDR Fund (NYSEARCA:XLF) is actually outperforming the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) year to date.
Big banks and regional banks have been delivering very solid earnings. With these strong results, management has overwhelmingly been shareholder-friendly, buying back shares and consistently increasing dividends.
Goldman Sachs stock is no exception with a second-quarter earnings beat ($5.81 per share vs. $4.89 per share) and a significant raise in its quarterly dividend for the third quarter.
In fact, on a purely capital gains basis, Goldman Sachs stock is outperforming the more diversified big banks like Bank of America Corp (NYSE:BAC), which I am bullish on after it recently delivered its best quarter in company history, and my longtime favorite JPMorgan Chase & Co. (NYSE:JPM)
Goldman Sachs and a Banner Q2
Goldman made no secret that it holds the top spot in global announced and completed mergers and acquisitions. The investment bank has traditionally been Goldman’s bread and butter. However, with a difficult sales and trading environment, which many blame on the persistently low volatility, it’s extremely important that the advisory and issuance business at least treads water.
Goldman Sachs has already had to shrink its sales and trading department, so the second quarter beat in equities was a welcome note for investors. Equities net revenues exceed $2 billion, the second-highest quarterly performance in four years, and the Company also took the top spot here in year-to-date worldwide equity and equity-related offerings and common stock offerings.
What is clear though is that GS stock has been rising due to the pivot toward the consumer business. That is simply where the growth is.
Net revenues in Investing & Lending grew 16 percent year-over-year and 38 percent sequentially over the first quarter of the year. Most of that was due to gains in public equity investments and to a lesser extent from gains in the bond market, but those are big growth numbers for any department in an establish bank.
Goldman Sachs Stock and the Retail Market
Even though Goldman’s investment banking and equities business has recovered, David M. Solomon, Chairman and CEO of Goldman Sachs, has clearly re-positioned GS toward a more mainstream brand. This will be the long-term direction of the franchise.
It’s a departure from the old Goldman ethos, but there’s no denying the strength of the U.S. consumer, which has been fueling strong results for its more traditional competitors in the space.
One of their biggest investments has been Marcus, a consumer finance business that Goldman has been building for the last three years. It’s currently still a drag on earnings, but they have made good progress with $48 billion in deposits and $5 billion in loans written as of this month.
The strategic shift is working.
The market has rewarded shareholders as GS stock has continued to climb throughout the year. With more consumer initiatives like the much-touted partnership with Apple credit card ahead, Goldman Sachs stock should again deliver strong earnings in the third quarter.
As of this writing, Luce Emerson was long JPMorgan stock.