If you are a value investor, there are a lot of good low-priced stocks worthy of consideration right now, especially given that the market has been down so much over the past 12 months.
Among the best value stocks out there at the moment is Goldman Sachs (GS -1.10%). The financial services giant is available at an attractive valuation -- one that might be too good to pass up, given the strength of this company. Let's look at why this is a top-value stock right now.
Goldman Sachs has diverse revenue streams
Goldman Sachs has been around for more than 100 years and remains one of the largest financial services firms in the world. It is best known as an investment bank, as it is one of the largest in the country. In 2021 it executed more deals (when measuring the overall value) than any other firm in the country. This year, it ranks second in investment banking revenue behind only JPMorgan Chase (JPM -1.02%). The two have consistently ranked at or near the top, by most metrics, over the years.
But investment banking is not Goldman's biggest revenue generator. The largest segment is actually global markets, the business arm that focuses on trading, execution, risk management, and other services for institutional clients. Asset management is traditionally their third-largest business, followed by consumer banking and wealth management.
Goldman Sachs' diverse revenue streams and market strengths across its businesses allow it to better navigate market downturns than most of its competitors. Two of its businesses -- investment banking and asset management -- were down big in the most recent quarter, as mergers and acquisitions activity dried up in the slowing economy, while the bear market took a bite out of asset management assets and revenue. Yet, the consumer and wealth management (CWM) and global markets arms generated increasing revenues in the quarter, as more trading in fixed income and interest rate products drove global markets higher, and higher interest rates and loan and credit card balances, along with deposits, drove CWM revenue up.
Overall, revenue was down 23% year over year in the latest quarter while net earnings fell 48% compared to the same quarter a year ago. The stock price is down about 22% year to date.
Built for the long run
As a company in the financial sector, Goldman Sachs is definitely feeling the effects of the downturn. Financial firms, particularly banks, are cyclical in that they surge during growing economies and struggle when the economy slows down or goes into recession -- which is where we have lived all year and may continue to reside for the next few quarters. But it is important to remember that periods of economic growth last longer than periods of economic downturns or recessions.
And when the economy does turn, Goldman Sachs should outperform most other financial services competitors because of the growth engine of their investment banking business. They are also among the market leaders in global markets and asset management, two businesses that thrive when equity markets are up.
Even with the stock price down 22% this year, Goldman Sachs is trading at about $298 per share -- up 121% from the low point at the start of the pandemic, when it hit $135 in March 2020. Before the pandemic, Goldman Sachs hit its 52-week high of $250 per share in January 2020, and its stock price is still up 19.3% since then.
Given its titanium brand, market leadership status, and efficient management, Goldman Sachs should come charging back when the market and economy turn. However, given the economic forecast, it may continue to tread water and perhaps even dip lower over the next few quarters. But a good sign of its resiliency is that the company has fared relatively well through the first three quarters of the year.
And the best part about Goldman Sachs right now is its valuation. At the end of the second quarter, it was trading below its book value, with a price-to-book (P/B) ratio of 0.97 and a price-to-earnings (P/E) ratio of 5.7. The P/B ratio is now at 0.95 as of Sept. 23, while the P/E ratio is up to 6.75, but it still remains undervalued for its massive long-term growth potential. This is why Goldman Sachs is a great value pick right now.
