Shares of Goldman Shares (NYSE:GS) are finally getting their mojo back after an unrelenting sell off. GS stock had reached bear market territory, falling over 20% from the $275 area in mid-March to nearly $210 last week.
Goldman has since rebounded sharply following yet another solid earnings report and continued hawkish talk from the Fed on interest rates. Given the improving fundamental and technical backdrop, look for GS to head higher over the coming months.
GS stock is assuredly more attractive on a fundamental basis. The company reported earnings Tuesday, handily beating on both the top and bottom line. Earnings-per-share came in at $6.28, trouncing estimates in the $5.40 range. Revenue was also better than consensus at $8.65 billion versus expectations of just $8.4 billion. The current P/E now stands at just 17.3 with a forward P/E under 9. Both of these ratios are at a big discount to the overall market.
Goldman Sachs has beaten estimates by a wide margin over the past four quarters, yet the stock has gone nowhere in that time frame. The combination of better-than-expected earnings quarter after quarter and a stagnant stock price certainly makes for a much lower valuation. The dividend yield of nearly 1.5% and healthy stock buyback program should also attract value investors. Ultimately, of course, valuations do matter.
What to Expect From GS Stock
The technicals also point to a higher GS stock price on the horizon. Shares had reached the most oversold levels over the past year on a 14 day RSI basis before rebounding sharply. Goldman Sachs stock is now back above the $220 lows from mid July, which should now be a solid support area.
Goldman also looks attractive on a comparative basis to the Financial Select Sector SPDR Fund (NYSEARCA:XLF), a basket of major financial stocks. GS stock had been highly correlated to the XLF until April when that correlation began to breakdown. This divergence has reached an extreme, however, with a reversion back to the mean likely and for GS stock to be a relative outperformer to the XLF over the coming months.
While the recent market turmoil and increased volatility has certainly increased investor angst, adding a beaten-down stock like Goldman Sachs with solid fundamentals and improving technicals to your portfolio can help lower some of that level of concern.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
