Goldman Sachs Group, Inc. (NYSE:GS). It’s the bank the liberal press loves to hate, but a bank more investors should learn to love.
The Wall Street investment house almost always seems to make money, no matter what’s going on with the rest of the economy, which is one of the primary reasons it attracts such suspicion and derision, and one of the primary reasons it’s such a great place to put your money.
Without further ado, then, here are seven things you need to know about Goldman Sachs Group, Inc. (NYSE:GS), in no particular order.
1. Outstanding share-price performance over the past year
Shares prices in the Wall Street powerhouse have gone up by 24.13% in the last year. Compare this with JPMorgan Chase & Co. (NYSE:JPM), where shares have risen by just 10.22% in the same time period: a strong performance, to be sure, just not Goldman strong.
2. Strong first-quarter earnings
For the first quarter of 2013, Goldman reported a 7.2% year-over-year rise in net income on revenue growth of 1.4%: this in a tough quarter for banks. Wells Fargo & Co (NYSE:WFC)‘s revenue edged down by 1.4% for the same time period, while JPMorgan Chase & Co. (NYSE:JPM)’s dropped 3.87%.
3. Warren Buffet loves Goldman
At the height of the financial crisis, Warren Buffet — CEO and COB of Berkshire Hathaway Inc. (NYSE:BRK.A) — invested $5 billion in the then-wobbly Wall Street powerhouse, which gave him the option to buy 43.5 million shares at $115 each.
On March 26, Buffet announced that rather than cashing out — which would have netted him an immediate $1.4 billion — he would use his “warrants” to purchase even more stock: staying in the company and becoming a top 10 shareholder. Now that’s confidence.
4. Great return-on-equity
ROE tells gives you some idea of how much profit a company is generating with shareholder money. For the first quarter, Goldman Sachs Group, Inc. (NYSE:GS) is reporting a return-on-equity of 12.4% . Investor-darling Bank of America Corp (NYSE:BAC) has an ROE of just 2.62%.
Goldman even beats JPMorgan Chase & Co. (NYSE:JPM) on this metric, which has an ROE of 11.55%. In this post-crisis era, anything north of 10% is good, but 12.4% is particularly strong.
5. Attractive valuation
Price-to-book ratio gives you some idea of what a company would be worth if it went bankrupt and sold immediately. You want the P/B to be low — ideally under 1.0 — but not too low; that could indicate there’s something fundamentally flawed with the company.
At 0.96, Goldman’s P/B is just right, signaling a good bank at a bargain price. B of A has a P/B of 0.57; to me, that’s too low and is a red flag versus Goldman Sachs Group, Inc. (NYSE:GS)’s green light.