360 Degrees of Goldman Sachs

Goldman is the world leader in mergers, acquisitions, public common stock offerings and IPOs. It is best in class in trading commodities, fixed income and equities. Equity trading resulted in a 94% jump in revenue. Fixed income generated revenue of $3.74 billion, 42% higher than its previous record.

Return on equity was a record 38.8% in the first quarter, beating Morgan Stanley's record of 36.3% in the first quarter of 2000. Earnings were up more than 60% on revenue that was up also over 60%. This would be like a major league ballplayer having a 100-home run season with 40 stolen bases; dominant is an understatement.

Goldman has become so dominant that it creates a snowball effect. Goldman gets sweetheart deals, such as first crack at business with many Asian companies like Sumitomo. CFO David Viniar told analysts that Goldman was seeing unprecedented trading and client activity in Japan and Asia, and that the level of deals pending is "significantly" higher than a year earlier. Rarely if ever have we seen fixed income, equities, and mergers and acquisitions at a high simultaneously. Goldman has encountered the perfect storm and is profiting from it.

I could go on about the numbers; suffice it to say they were awesome. With a forward multiple of around 10 and a long-term growth rate of around 14%, this stock looks cheap. However, I believe the estimates are low. Merrill Lynch(MER Quote) has a forward multiple of 12.8; if Goldman had the same P/E, it would give the stock a 28% upside on multiple expansion alone.

Considering the perfect environment we are still in, the comments made about future deals by the CFO, and analysts being very wrong about the estimates this quarter, I believe this is a $190 to $200 stock.

A Tough Buy Right Now, by Dan Fitzpatrick

Goldman Sachs is in a well-defined uptrend. We can see on the weekly chart below how buying pressure has increased on pullbacks. Even a multiweek pause in the uptrend has brought out aggressive bidding -- buyers have simply lost patience and paid the market price.

This loss of patience occurred in February and March. The stock traded sideways just long enough for the uptrending support line to catch up. For the past four weeks, Goldman has closed successively higher.

However, uptrends don't last forever, and Goldman is a tough buy right now. The strong upside momentum is undeniable, and I'm not one to fade well-established trends. However, each time Goldman has been this high in its channel the stock has tended to pull back and offer a better entry. At best, I'd wait for a pullback to buy.

At worst, Goldman will pull back significantly, as it did in April of 2004 and 2005. I'd wait until the lower edge of the trading channel has been tested. This requires patience, which is much talked about, but rarely displayed.