Is Goldman Sachs Group, Inc. (GS) a Good Stock to Buy?

We can also compare Goldman Sachs Group, Inc. (NYSE:GS) to megabanks such as JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc. (NYSE:C) with both retail and investment banking operations. The bank is well in line with where JPMorgan Chase and Wells Fargo are valued in terms of those companies’ trailing earnings, and both of those peers experienced an increase in net income of over 20% in their most recent quarter compared to the same period in the previous year. Wells Fargo does carry a fairly large premium to book value (the P/B ratio is 1.3) but similarly to Goldman the company appears to be doing quite well at monetizing these assets. JPMorgan Chase and Wells Fargo also pay dividend yields in the range of 3%. Citi, meanwhile, is more dependent on an improvement in its financials. It did grow its earnings nicely in its most recent quarterly report compared to Q4 2011, and analysts are expecting good performance in the next couple years resulting in a forward P/E of 8, but we think it might be worth sticking with the more dependable banks.

We aren’t sure a pure-play investment bank is necessarily a better investment, so we’d be quite interested in looking more closely at JPMorgan Chase and Wells Fargo. In terms of Goldman Sachs versus Morgan Stanley, there is a gap in valuation but Goldman has been a considerably stronger performer recently. Since the stock looks cheap on an absolute basis, we think it makes a better prospect for further research until the relative difference between the two banks’ growth rates changes.

Disclosure: I own no shares of any stocks mentioned in this article.