Saturday, 17 January 2015

Reiteration of my first level to buy shares in Goldman Sachs

The last time I wrote about Goldman Sachs (link here) I concluded that:

'I want a 10% discount to this fair value.  That's US$167 which interestingly is a level where the shares have found some interim support during the last year (with further support c. US$10-15 lower)'

So with the shares closing on Friday (after the publication of the Q4/FY numbers) at around US$177 we should still keep a watching brief on the stock?

The simple answer is 'yes'.  Given the inevitable volatility of the Goldman Sachs model I always like to buy in at a bit of a discount (c. 10%) to static 'fair value'.  Given the latter - using the tangible book value / return on equity data below - works out around the mid US$180s, so broadly speaking I would reiterate that US$167 figure.

Two comments from the numbers / conference call - which included many aspects akin to the themes apparent in the other financial stocks I have written up in the last few days on Financial Orbit (J P Morgan, Wells Fargo, Citigroup, Bank of America) - also caught my attention:

Compensation costs in FY14 fell to just over 35%, about 1000 basis points lower than the pre-crisis average.

6.6M shares repurchased during quarter for $1.25B. Another 25.4M shares remain under buyback program.

That sounds to me like a couple of useful levers that can be pulled if required.

The other interesting aspect - as also discussed at the above link - is the correlation with the S&P 500 index.  Financials have broken down a little against the broader indices and I note the gap between the two has seldom been wider over the last year.  Again this helps point to that c. US$167 level as an interesting starting point, even potentially in a softer market.  

No comments:

Post a Comment