Filed Under: ,
Tickers in this Article: GS
It's amazing what a few good traders can do for a firm! On December 18, Goldman Sachs (NYSE:GS) reported a profitable quarter while many of the company's competitors have been shamefully admitting multi-billion dollar subprime losses.

For the quarter, Goldman reported net profit of $3.17 billion ($7.01 per share) from the prior year's $3.10 billion ($6.59 per share). Wow! However, investors sold the stock off the day the earnings were announced, which left many scratching their heads, wondering, "what gives?" The fact of the matter is, despite an incredible quarter, Goldman Sachs also issued cautious comments regarding the upcoming first quarter 2008. The company couldn't have made a better move, but more on that in a moment...

Awesome Traders
During the quarter, while trading departments at other banks were taking it on the chin, Goldman reported a 6% (to $3.3 billion) increase in profits from commodities and currencies. It's important to note that the increase included a one-time $800 million sale of the company's interests Cogentrix Energy.

It's hard not to laugh when we hear about analysts examining the "worth" of the quarter with the aforementioned sale. At the end of the day, the company's traders did what they needed to do to keep the books in the black. It's called smart business, even if the company did sell a major stake in one of its investments.

A trade is a trade is a trade. What's more, in the world of trading, you either win or lose - there's no middle ground - and Goldman won during the quarter.

Cautious Outlook A Good Play
As previously mentioned, Goldman also issued guarded comments with earnings, citing tough trading conditions are reasons for potentially lackluster earnings in the coming quarter. And while Wall Street might see the comments as worrisome, really, it was the best course of action. Under promise, over deliver seems to be Goldman's motto of late.

The company has been quite clear about the subprime risk still looming, but should traders bring home another straight-A report card in the first quarter, the shares will likely rally.

It's important to remember two things at this point:

1. If the rest of the investment banking sector tumbles, it's likely that shares of Goldman will suffer in sympathy. It's just a common occurrence in the market that rising and falling tides will cause a rise/lowering in all life boats. Never put all of your chips in one company and expect it to trade completely independently of the broader sector.

2. Despite weak sector performance, Goldman remains a value for investors. Trading at 1.8-times sales and with a low 8.6 P/E, fundamental bulls will likely continue to covet the stock. (To learn more, see Understanding The P/E Ratio.)


And, don't forget that the company pays a $1.40 dividend, which translates into a 0.70% dividend yield even with shares trading over $200 each. Finally, with the current share price fairly expensive for common investors, it's likely that Goldman could declare a split in the coming quarter, something that may attract additional investment.

Conclusion
The bank is not only fundamentally healthy, but is playing its present hand like a pro. This is something investors who seek quality are most likely already aware of.

To learn more about value investing, see Warren Buffett: How He Does It.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

comments powered by Disqus

Trading Center