Here’s why it’s wise to hold onto Goldman (GS) shares now
The Goldman Sachs, Inc. GS can be a solid bet now, supported by its position as a world leader in mergers and acquisitions. The company’s strong customer activity in a context of volatile markets should yield positive results.
Organic growth, regular capital deployment activities and business diversification continue to drive Goldman’s growth. However, litigation and the increase in the cost base remain a concern.
Capital strength and business diversification have probably helped the company gain 25% in the past six months compared to industrygrowth of 14.2%.
Image source: Zacks Investment Research
The company’s earnings estimates also rose 17.6% and 2.3% for the current year and next year, respectively, over the past 60 days. The stock currently carries a Zacks Rank # 3 (Hold).
While overall revenues have been affected by volatile market conditions in recent quarters, Goldman remains well positioned for growth, given its strong investment banking (IB) operations and strong client franchise. . IB’s revenue in the first six months of 2021 saw a significant increase thanks to exceptional trading activity and strong stock markets. These, in turn, are likely to help the company capitalize on improving the environment.
The main source of stability of the company’s profits is the diversification of its activities. Within traditional banking, a diverse product portfolio is more likely to support growth than many other banks, which have left some of these areas. Goldman has taken initiatives to boost its business by launching a digital consumer lending platform and an automated wealth management platform.
Driven by a strong capital position, Goldman has consistently improved its shareholder value through regular capital deployment activities. Following the announcement of the results of the second round of 2020 stress tests, the company resumed share buybacks in the first quarter of 2021, which had been suspended following the coronavirus crisis. Share buybacks also continued in the second quarter of 2021. This not only reflects the company’s commitment to delivering value to its shareholders, but also its strong position to deal with severe economic downturns. So, given a strong liquidity position, favorable payout ratio and strong earnings, Goldman’s capital deployment activities appear sustainable.
Nonetheless, Goldman’s bottom line has been affected in recent years by the increase in its cost base. Although expenses have been volatile in recent years and declined significantly in 2016, the rise in claims costs and litigation costs continues to escalate. In January 2020, the company announced plans to cut costs by $ 1.3 billion over three years. However, continued investment in technology and an increase in transaction spending during times of higher customer activity will keep the spending trend volatile.
Goldman is heavily dependent on foreign income, as evidenced in recent years. A number of risks arising from an unfavorable regulatory and political environment, unfavorable fluctuations in exchange rates and the poor performance of the regional economy could adversely affect its sales.
While the company has settled some disputes related to the sale of risky mortgage-backed securities, many cases have yet to be resolved. All of these are expected to result in high expenses and short-term litigation provisions.
Actions to consider
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Evercore Inc.EVR’s current year profit estimate has shifted north in 60 days. The company’s shares have gained 11.3% in the past six months. Currently he holds a Zacks Rank # 2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.