Goldman Sachs Delivers for Shareholders (GS)

Few American companies are as vilified as Goldman Sachs (GS). Formerly an investment bank, Goldman is now a commercial bank, a change that allowed it to take billions in taxpayer assistance during the financial calamity of 2008. Some would debate the usefulness of keeping Goldman in business, saying the company doesn’t produce essential goods like automobiles, clothes, energy or food. Still others would argue that Goldman probably didn’t need the taxpayer money in the first place. Given the massive profits it was turning before the financial crisis and robust earnings so far in 2009, Goldman has done just fine.

Throw in the lavish compensation and bonuses many of Goldman’s top employees receive and it’s easy to see why the company is controversial. We recently discussed some of the controversy surrounding Goldman. While the firm conjures up images of Gordon Gekko saying “Greed is good,” that’s not necessarily a bad thing if you own the stock.

Goldman has been a public company for roughly 10 years. In that time, the stock is up by about 10% annualized, while the S&P 500 was generally flat for the same period. Goldman shares have more than doubled this year, leaving broad benchmarks in the dust. Financial stocks often out perform in bull markets, but Goldman’s performance has been nothing short of extraordinary. It is worth noting that the stock is still well off its all-time high. Any rebound in initial public offerings (IPOs) as well as mergers and acquisitions (M&A) will be good news for Goldman. GS is a kingmaker in the M&A and IPO worlds.

Goldman’s legendary trading operation is in even better shape. Goldman makes millions of dollars per day buying and selling every asset class imaginable. While risky trading practices played a big part in leading the financial sector to the abyss in 2008, Goldman is actually reducing its leverage according to some reports.

While this may be a sign that Goldman is reducing its risk profile, it does not mean the company will be less profitable in the future. Analysts expect Goldman to earn $5.63 a share on revenue of $10.96 billion in the fourth quarter. The shares trade at a forward-looking P/E ratio of only 9.3. The share price may look high, but Goldman is a cash machine. While there is no such thing as a guarantee when it comes to the stock market, Goldman is a best of breed stock that is likely to keep rewarding shareholders. As a “can’t beat ‘em, join ‘em” play on the market, go with GS.

Disclosure compliant with FTC 16 CFR Part 255 covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.