Displaying items by tag: financials

Tuesday, 22 September 2020 16:28

Banks Might Prove a Good Buy

(New York)

The better the economy gets, the more banks seem like a good buy. Banks have been rather severely beaten up over the last several months, largely missing on the price recovery of so many other stocks. This is primarily because of two factors—ultra-low interest rates, and the potential for losses on their loan portfolios. However, it is increasingly appearing like loan losses may not be nearly so severe as forecast, and that billions of Dollars set aside to account for such losses may now be released onto earnings over the next couple of quarters.


FINSUM: Two considerations here. Firstly, the idea of loan losses flowing back to the bottom line and causing upside surprises at earnings time sounds great, especially within the longer-term perspective that banks are a good macro bet on the recovery. The downside risk here relates to an article yesterday in BuzzFeed that accused banks (using obtained data on potential fraudulent activity in client accounts) of not following regulations related to money laundering. That could obviously turn into a big mess, but as yet it is unclear if that is a material risk.

Published in Eq: Financials
Thursday, 18 June 2020 16:29

Why Goldman Sachs’ Stock is Poised to Shine

(New York)

Godman Sachs has generally been underperforming its competitors for years. However, under the leadership of CEO David Solomon the future is looking increasingly bright. On the one hand, the bank’s bet that trading would return as a huge driver of revenue and profit is starting to look smart (though it took about a decade), but on the other, its new focus on consumer and commercial banking products seems wise. Marcus, the brand under which its consumer-facing high yield savings accounts for consumers and businesses is marketed, has been growing its user base, with Goldman Sachs more generally has entered into many partnership deals in the consumer space. These include a new card with Apple, and a small business lending program in partnership with Amazon.


FINSUM: Goldman has been trying to shed its clubby image, and so far it seems to be making all the right moves. We are bullish on the future.

Published in Eq: Financials

(New York)

Markets are in a very rough place right now, with benchmark indexes approaching bear market territory on Monday. Energy and travel have been the epicenter of losses, but every sector s getting hit badly. With that in mind, what is the best sector to invest in right now? The answer may be—somewhat surprisingly—financials, and XLF in particular. Whereas the S&P 500 as a whole was in the 99th percentile of valuations historically before the big fall, financials were only in the 60-70% range. Now with the big tumble in prices, financials are in the bottom 1% of their ten-year valuation range.


FINSUM: So rates and yields are super low, which obviously hurts banks’ net interest margin and has led to financial stocks getting pummeled. However, they are so cheap that this is a very good long-term entry point.

Published in Eq: Financials
Tuesday, 04 February 2020 11:10

Markets Surge as Trump’s Election Chances Jump

(New York)

Donald Trump wasted no time in highlighting Democrats’ big debacle in the Iowa Caucus. And interestingly, markets wasted no time in jumping on news of the issues in Iowa. In particular, bank stocks jumped across the board (from JPM to BAC and beyond) on news of the reporting issue in Iowa. Investors think a Trump re-election will be better for markets, and bank stocks are particularly sensitive as the current president is viewed as much more favorable to financial companies.


FINSUM: If Bernie ends up winning the Caucus, expect markets to take a little hit, as he (or Warren) will be the exact opposite of “good” for bank stocks.

Published in Eq: Financials

(New York)

Morgan Stanley’s earnings this week were an absolute blow out for the Street. The bank beat all expectations and performed exceptionally well. For us, the earnings really feel like a salute to the whole wealth management industry, as it was Morgan Stanley’s pivot to focus more on that business that has made it the reliable earnings machine that it has become. Revenue from wealth management accounted for around 40% of the whole bank’s revenues, and was up 11% on the year.


FINSUM: Wealth management is a rock solid and capital light business, and MS’ earnings are a testament to that. Gorman’s choice to focus on this segment of their business a few years ago was a very smart one.

Published in Eq: Financials
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