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Goldman Sachs Stock Still Has Room to Run

Goldman Sachs is back to what it does best: making money in mysterious ways.
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Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

is back to what it does best: Making money in mysterious ways.

Goldman

turned in a huge first quarter Tuesday, more than doubling analyst expectations.

It is very hard to know exactly how Goldman did so well. By far the largest contributor to earnings was the fixed income currency and commodity division, which encompasses so many products that the results could be due to just about anything.

During the company's conference call Tuesday morning, Goldman CFO David Viniar said those profits came from trading highly liquid products. In other words, it was not taking much risk, or working especially hard to match up hard-to-find or hard-to-convince buyers and sellers.

Also, Viniar said the earnings were broadly distributed throughout the division.

Okay -- so how did Goldman make so much money?

Either Viniar is fibbing -- which is quite possible -- or, as he said, the reduced competition due to weakened competitors like

Citigroup

(C) - Get Citigroup Inc. Report

, or the sale of

Bear Stearns

to

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

and

Merrill Lynch

to

Bank of America

(BAC) - Get Bank of America Corp Report

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and

Lehman Brothers'

bankruptcy, have allowed Goldman to pick up market share.

If reduced competition is really such a big factor, then

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

should also hit the ball out of the park when it reports earnings next week.

Analysts don't expect that, however. The consensus estimate of 15 analysts polled by Thomson Reuters expects a loss of 10 cents a share.

Goldman is the only large financial services company that has successfully figured out how to recruit, care for and feed thousands of super-hard-working, super-hard-performing people and convince them that they are part of something special, something larger than themselves, and, of course, something that will make them plenty of money.

The Bernie Madoff Ponzi scheme has reminded us to be suspicious of companies that make lots of money in mysterious ways. We know from

AIG

(AIG) - Get American International Group, Inc. Report

, that a public listing is no guarantee of anything. But Goldman is probably worth a gamble. As

The Wall Street Journal

pointed out today, they're having executives stay in Embassy Suites hotels on business trips! CEO Lloyd Blankfein is taking the Amtrak to Washington!

Goldman shares were trading down 5.9% to $122.53 Tuesday morning, as existing shareholders were diluted by the company's sale Tuesday of 40.7 million common shares for $123 apiece. The company said it hoped to use the $5 billion offering to repay the $10 billion federal preferred equity investment made through the Troubled Asset Relief Program.

But as the stock sale shows, there is still investor interest in the stock. And why not?

Warren Buffett's

Berkshire Hathaway

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is another big holder, with a $5 billion preferred equity investment in Goldman paying a 10% dividend. As part of the deal, Buffett's company has the right to buy an additional $5 billion in common shares at $115 per share.

Let me stress that investing in Goldman is a gamble. I have no clear picture how they make money, and neither do you. But at least they are staying in the right hotels.