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Goldman Sachs Holds Appeal
Even at Current Price

On several occasions, Richard Gallagher, Value Line Research has recommended investors consider Dow component Goldman Sachs (GS) stock.

“It is a global investment bank and securities concern with more than $1 trillion in assets under management. The company has about 38,300 employees and a market capitalization of some $70 billion. It has been a component of the Dow Jones Industrial Average since 2013.

Goldman Sachs delivered strong second-quarter results. The company posted revenues of $15.4 billion and earnings of $6.26 a share in the June interim, both of which exceeded expectations. The investment banking segment drove the performance with a 36% year-over-year increase in revenues thanks to higher underwriting activity as markets recovered from the spring “corona bear market” more quickly than expected.

There was also an unprecedented amount of capital raising by major corporations working to strengthen their liquidity in the face of COVID-19 uncertainties. Looking ahead, we are raising our 2020 and 2021 estimates. While other major banks have been pressured by sharp increases in their provision for loan losses, Goldman Sachs has fared better owing to its sizable participation in the consumer and mortgage debt areas, which lessened their losses. These factors, coupled with momentum in the Global Markets and Investment Banking divisions, provide some optimism for the company’s near-term results. Elsewhere, it is worth noting that the investment bank reached an agreement with the government of Malaysian to resolve regulatory proceedings related to the 1MDB scandal. Goldman will pay proceeds from assets related to the now-defunct development business to that government. This resolution removes some reputational and regulatory risk.

As for the equity, we think it holds appeal even at the current quotation. Although GS shares have recovered from their declines earlier this year, they still offer solid and well-defined risk-adjusted total return potential to the 2023-2025 time frame. What’s more, it has an Above-Average rank for Safety and the dividend yield (recently 2.5%) is slightly above the Value Line median.”

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