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Goldman Sachs stock is traded below book value.
Spencer Platt / Getty Images
The old saw is for purchase
Goldman Sachs
when it trades below its book value — and investors have that opportunity again.
His shares
Goldman Sachs Group
(point: GS) fell 5.5% during Friday’s selloff, finishing at $ 287.56 each. Goldman is now trading below its first-quarter value of $ 293 per share, marking the first time since 2020 that the investment banking leader has earned less than book capital or equity.
The book value is equivalent to the liquidation value of a company and often offers a floor below one share. Goldman remains highly profitable and should be worth more than the liquidity of its assets, which are mostly liquid securities.
Buying Goldman below the portfolio during 2020 at $ 200 per share was a profitable strategy, as the stock more than doubled to over $ 400 at the end of 2021 with a record 2021 earnings of around $ 60 per share. The company – and the banking industry in general – is in better shape than it was in 2020.
Goldman’s fall comes amid a sharp drop in bank shares:
Wells Fargo
(WFC) also fell below book value on Friday
Citigroup
(C) withers with a big discount for booking. The
SPDR KBW Bank negotiable mutual fund
(KBE) fell 3.5% on Friday to $ 45.56.
Wells Fargo
,
whose shares fell 6.1% on Friday to $ 40.08 each, now trading below its first-quarter book value of $ 42 per share.
Citi
The group, whose share fell 4.5 percent to $ 47.71, trades for about half of its book value of $ 92 per share — well below its tangible book value of $ 79 per share.
Berkshire Hathaway
(BRK / A, BRK / B) acquired a $ 3 billion stake in Citi, which shares more than 4% in the first quarter.
The other members of the Big Six of American banks—
JPMorgan Chase
(JPM),
Morgan Stanley
(MS) and
the bank of america
(BAC) —transactions above book value.
the bank of america
,
whose shares fell 3.9% on Friday at $ 33.17, now trades at just 10% premium relative to book value.
Wells Fargo banking analyst Mike Mayo has an Outperform rating at Bank of America, which is one of his top picks. “What is surprising is that we estimate that BAC would still have a ROTCE (return on equity) of 10% + in a recession, implying that not only the share price is in recession today but that it is trading at a 15% -20% discount. “Historically,” Mayo wrote on June 1, when the bank’s stock was at $ 37. At the time, Mayo was up 40%.
Barron’s has written positively for both JP Morgan and Goldman this year, arguing that both stocks look cheap given the stable earnings outlook. The top six banks are now trading at just seven to 10 times the projected profits for 2022, with Goldman and
Citigroup
at the bottom of the group with price / profit ratios of seven.
Investors are worried about the risks of recession and stock acquisitions should be more subdued this year. But one strong positive that seems to be overlooked by investors is that higher short-term interest rates this year should provide a good boost to bank profits.
Write to Andrew Bary at andrew.bary@barrons.com
