Eq: Financials

Eq: Financials (25)

Thursday, 18 June 2020 16:29

Why Goldman Sachs’ Stock is Poised to Shine

Written by

(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.

Tuesday, 31 March 2020 10:03

Wells Fargo Looks Vulnerable to Mortgage Crunch

Written by

(New York)

The epicenter of the financial crisis accompanying the Coronavirus pandemic has undoubtedly become the commercial real estate space. With so many physical businesses bringing in zero revenue, the huge suspension of cash payments is going to flow through to property owners and then to the lenders that financed those building purchases. Multiple parts of that value chain are going to targeted by markets, but Wells Fargo, in particular, looks exposed. The bank has almost 13% of mortgage market share (residential), around double the exposure of JPMorgan Chase and triple that of Bank of America.

FINSUM: The government’s stimulus package offers some good assistance to help support cash flow (via Ginnie Mae), which could soften the blow. But still, it is going to be a painful period.

(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.

Tuesday, 04 February 2020 11:10

Markets Surge as Trump’s Election Chances Jump

Written by

(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.

(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.

Wednesday, 15 January 2020 13:20

The Big Goldman Earnings Disappointment

Written by

(New York)

The stage was set for Goldman to knock it out of the park. JP Morgan had just released the best US bank earnings ever and other banks were looking strong heading into earnings season. Goldman has a new CEO and has made big changes to its business. It felt like this might be the start of a new era for the bank signified by some great earnings. Instead, it all fell flat. Goldman’s net income fell a whopping 26% and missed earnings per share estimates by a mile. That said, revenues did rise 23%, but litigation costs hurt the bottom line.

FINSUM: It wasn’t meant to be this quarter, and don’t be fooled by the big revenue growth as it mostly came from a huge surge in fixed income revenue, which is not sustainable quarter to quarter.

Tuesday, 07 January 2020 11:46

Goldman is Going Transparent to Boost Its Stock

Written by

(New York)

In a move that seems highly in contrast to its nature (or at least its “old” nature), Goldman Sachs is changing the way it reports its earnings as part of an effort to be more transparent. The bank is not doing this because of some general high-mindedness, but rather so that investors can better grasp the progress it is making in its various divisions, including in consumer finance. That area includes its new consumer savings and online lending unit—Marcus—as well as its new credit card venture with Apple.

FINSUM: This seems like a smart play and we could see this as a catalyst for Goldman to break out of its long-term stock stagnation.

Friday, 03 January 2020 15:15

How to Profit from Fears of a Slowdown

Written by

(New York)

The market and investors are in an odd juxtaposition. For the most part, the media and analysts remain pretty bearish, yet the market continues to rise. Fears of an economic slowdown are persistent. With all this in mind, what is the best way to play the market? Barron’s says you should sell puts, cashing in on investors’ fears and desire to buy puts. For instance, one could sell puts on the Financial Select SPDR (XLF), which is at a high water mark but is still quite vulnerable to a downturn because of fears over the economy and rates.

FINSUM: Granted, this is a nickel and dime strategy but it sure beats fearful money sitting in a money market account not earning much.

Thursday, 02 January 2020 10:45

JP Morgan May Be Ready to Surge

Written by

(New York)

JP Morgan finished 2019 on a bang and was a great stock all year. It rose by a market-beating 42% over the course of the year despite worries over the economy and declining interest rates. This has led some to think the bank’s stock is overpriced, but many, like RBC believe it will continue to rise. The bank has what is considered a “fortress” balance sheet and it has done a great job diversifying its revenue streams so that its earnings are smoother. Jamie Dimon has no plans to retire.

FINSUM: Aside from its well balanced revenue streams (47% from consumer and community banking, 31% from its corporate and investment bank), the bank is also making a bigger push into wealth management, which could start helping the stock.

Thursday, 02 January 2020 10:43

Why Goldman May Be a Great Buy

Written by

(New York)

Goldman Sachs was the stock of the year in 2019. It was the best performing stock in the Dow, gaining more than 37% in the year. The bank started the year poorly with its 1MDB scandal, but as the year went on, David Solomon’s (the bank’s new CEO) leadership started to help the stock. The bank settled the issues and its earnings improved. It also made a large push into consumer finance as part of an effort to diversify its business and become a “modern, digital consumer bank”. The bank, through “Marcus”, its new consumer lending unit, is offering consumer savings products, while Goldman itself is partnering with Apple on the company’s new credit card.

FINSUM: In our view, Goldman’s stock price outlook is very linked to the big new push it is making in consumer finance. Its core business will likely continue to perform as it has, so the real difference maker will be its new business lines and the success of its “modernization”.

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