We recently published a list of 7 Cheap Blue Chip Stocks to Invest in Now. In this article, we are going to take a look at where The Goldman Sachs Group, Inc. (NYSE:GS) stands against other cheap blue chip stocks.

Should Investors Revisit the Idea of the S&P 500 Being a Low-Risk Investment?

The technology sector has been the highlight of the stock market. On September 23, Reuters reported that hedge funds bought US tech and media stocks at the fastest pace in the last 3 months, last week.

With the interest rates falling, industrial spending is expected to revive as the companies can now borrow at lower costs and upgrade their technology and other related products. These high borrowing trends within the businesses are expected to boost the earnings of the tech companies further.

However, as far as the consumer sentiment towards borrowing is concerned, it seems that the market demands more rate cuts before it starts borrowing. We discussed how the borrowing trends are expected to perform in 7 Cheap Beginner Stocks to Invest In. Here’s an excerpt from the article:

“The Federal Reserve has approved the interest rate cut of 50 basis points, which at least for the time being is turning out to be good for the stock market. The interest rate cut also means that businesses and consumers have received immediate relief, but is the public ready yet to jump out of their high inflation rate mindset?

According to a recent report by Reuters, even before the Fed announced a rate cut the financial markets had already begun making credit cheaper for consumers and businesses. Mortgage rates were slightly down, corporate bond yields were also cut, and day-to-day personal and auto loans were also eased. For instance, the average rate a person had to pay for a 30-year fixed home mortgage is 6% after decreasing 2 percentage points from a year ago. Moreover, as per Redfin, a real estate firm, the average median price of houses sold in the middle of September was $3,000 less than the all-time high prices in April and represented a 3% decrease year-over-year.  A recent survey shows that while inflation has come down significantly during recent times, the public mood is still distracted due to the past two years of high inflation.”

Turning back to how investors might revisit their idea of S&P being a low-risk investment. This idea was pitched by Bill Nygren, the Chief Investment Officer at Oakmark Funds in a recent CNBC interview. His approach reflects a strategic shift as to how investors might view the S&P 500 and mega-cap stocks in the current market situation. He pointed out that while the index has traditionally been viewed as a diversified index, in reality, it is just a bet on a few large technology companies. Currently, around half of the S&P 500 is dominated by some 25 large tech names, which essentially diminishes its original diversification.

Bill Nygren, emphasized the importance of having a more diversified portfolio beyond just mega-cap stocks. He believes that diversification of the portfolio provides better risk-adjusted returns compared to relying solely on a few big companies. We have also discussed Matt Stucky, Northwestern Mutual Wealth Management’s chief equities portfolio manager, talking about a similar strategy in 13 Most Undervalued Blue Chip Stocks To Buy According To Analysts.

The investment strategy that Nygren is vouching for suggests that the current market scenario where investors are favoring positive momentum stocks can lead to missed opportunities in other undervalued sectors such as financials and energy. He believes that the potential lucrativeness of the Tech sector has overcrowded the space creating opportunity in other sectors.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

The Goldman Sachs Group, Inc. (NYSE:GS)

Forward P/E Ratio: 13.47

Earnings Growth This Year: 60.40%  

Number of Hedge Fund Holders: 68

The Goldman Sachs Group, Inc. (NYSE:GS) is one of the leading investment banks in the United States of America. It operates through the following business segments Global Banking and Markets, Asset and Wealth Management, and Platform Solutions.

The bank is a leader when it comes to equity, mergers, and acquisitions advising, debt underwriting, and wealth management. It also has a huge trading desk and lends and manages trillions of dollars for corporate giants.

It is also one of the cheap blue chip stocks to invest in now as it is trading at only 13 times its forward earnings with analysts expecting its earnings to grow more than 60% during the year.

The Goldman Sachs Group, Inc. (NYSE:GS) is a blue chip stock for a reason, the first being its huge market capitalization of more than $157 billion. The other reason is its strategic moat of being profitable during some of the toughest conditions. During the 2008 and 2009 market crash when other companies were struggling to keep their heads out of water, The Goldman Sachs Group, Inc. (NYSE:GS) had one of its best years ever in terms of profitability. Its revenue was close to being an all-time high whereas it maintained a 22.5% return on equity during the recession years.

Speaking of the present times, the second quarter earnings release highlighted continued revenue and net income growth for the bank. It generated more than $12.7 billion in revenue, a 17% increase year-over-year. Whereas, its net earnings skyrocketed 150% during the same time to reach $3.04 billion.

Management is focused on improving the overall returns of the company and to do this it is reducing its headcount and diminishing focus on consumer banking. The stock has remained popular amongst institutional holders. It was held by 68 hedge funds in Q2 2024, with total stakes worth $5.48 billion.

Ariel Appreciation Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2024 investor letter:

“Shares of global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also rose in the period following solid earnings results, highlighted by strength in fixed income, currencies 1 Sindreu, Jon. “The Second Quarter Split the Market.” The Wall Street Journal, July 1, 2024, p. B9. and commodities (FICC) as well as equities trading and better-than-expected investment banking fees. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and working to improve profitability in Platform Solutions by 2025. With the possibility of increased capital requirements from its regulators, GS plans to reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”

Overall, GS ranks 5th on our list of 7 cheap blue chip stocks to invest in now. While we acknowledge the potential of GS to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.