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Few companies are as recognized as Goldman Sachs (NYSE: GS ) . The investment banking giant has a reputation for employing the best and brightest talent on Wall Street, and for being able to make money from pretty much any situation.
When Warren Buffett invested in Goldman, at the height of the financial crisis, he referred to his investment as a "bet on brains." Essentially, he was betting that Goldman would not only survive, but thrive during the post-crisis years. It's obvious his investment was a success, but for the rest of us, is there still time to get in?
Investment banks are a dying breed
When it comes to large banking institutions that are focused on investment banking and wealth management services, there are a select few that qualify. The investment banking sector became much more consolidated as a result of the financial crisis, with giants like Merrill Lynch, Bear Stearns, and Lehman Brothers being bought for pennies on the dollar. Technically, there are no more "investment banks" since businesses like Goldman converted to "bank holding companies" because of the government bailouts.
It would stand to reason that the remaining big players would be in an excellent position to grow their market share and client lists. In addition to Goldman, other investment-focused institutions such as Morgan Stanley (NYSE: MS ) and JPMorgan Chase (NYSE: JPM ) have thrived in the years since the crisis, with perhaps a few missteps along the way.
JPMorgan has grown into one of the largest financial institutions in the world, with about $2.4 trillion in assets, an increase of about 60% from its pre-crisis levels. A lot of this can be attributed to the company scooping up both Washington Mutual and Bear Stearns in 2008 for pennies on the dollar. Although the headlines about JPMorgan have been dominated by its massive trading losses of last year, the company is actually doing quite well. Revenue is projected to rise this year, despite expectations of lower interest income.
Morgan Stanley is the smallest of the three by assets, and it makes most of its money from investment advisory and brokerage services. Over the past couple of years, Morgan Stanley has grown its investment services business by purchasing the remaining stake in Smith Barney from Citigroup, which it renamed Morgan Stanley Wealth Management. This move signifies that Morgan Stanley is more interested in wealth management, and shifting its focus away from high-risk trading activities that have traditionally been a larger part of its business.
Goldman Sachs: 2013
Today, Goldman is still one of the leading investment banking companies in the world, with just under $1 trillion in assets under management. The company offers financial advisory and underwriting services to corporations, investment management for both companies and individuals, as well as market-making services for a variety of products. The company also derives a substantial amount of its profits (17%) from its own proprietary investing and trading activities.
Since the time of the crisis, the company has done pretty well. Total assets are up almost 11% since 2009, and after a few years of decline, revenue is on the rise again. Goldman's revenues increased 19% year over year in 2012, and they are forecasted to grow this year and next. Also, since the crisis, Goldman has raised its dividend by 43% from $1.40 to $2.00 annually.
A buying opportunity created by the government's recklessness?
In the two weeks leading up to the government shut-down, and in the few days since, Goldman's share price has steadily fallen from its highs and is now down by about 8% since mid-September. The government's shenanigans may have given us a buying opportunity in this financial heavyweight.
Most companies comparable to Goldman are trading for between 1.2 to 1.3 times tangible book value, whereas Goldman trades for just 1.1 times tangible book value per share. Discounts in companies like Goldman are somewhat rare, so they tend to correct themselves before too long -- take advantage.
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