Goldman Sachs (GS 1.23%) has not given the market much to cheer about since the end of 2021. High inflation, rising interest rates, slowing growth, and several U.S. and overseas bank failures created a hostile investing climate for all financial-services companies. Goldman Sachs is no exception, and the shares are down about 1% year to date compared to the S&P 500, which is up 15%.
If you have an investing timeline of a year or less, there is little to motivate you to buy this stock at current levels in this uncertain market. However, this investment bank has plenty to like over the long term. Here's why you may want to research this stock further and put it on your buy list.
NYSE: GS
Key Data Points
Investment banking is a cyclical business
Goldman Sachs is a global investment bank, one of the largest in the world, with offices in over 30 countries and 60 cities globally. Investment banks are cyclical businesses whose performance follows the overall economic cycle. Investment banks do well when the economy grows because they are involved in several activities essential to economic growth, such as mergers and acquisitions, underwriting of securities, and asset management.
Investment banks can be a solid holding for investors with a long time horizon when buying shares at or near the bottom of an economic cycle. Banks have a history of performing well during economic recoveries because they can take advantage of the increased demand for financial services that comes with economic growth. Goldman Sachs is particularly well positioned to benefit from this pattern.
Economic analysts anticipate that the global economic slowdown will reach a bottom soon due to several factors, including the reopening of China, easing inflationary pressures, supply chains continuing to recover, the receding negative impact of the Ukraine war, and a bounce back from the pandemic's adverse effects. Since Goldman's operations are worldwide, its business performance and stock price loosely follow global economic growth and should rise as the global economy rebounds.
According to the latest Organization for Economic Cooperation and Development forecasts, global gross domestic product (GDP) growth should bottom out in 2023 at 2.7% and begin slowly picking up throughout 2024 -- a good time to invest in rebounding global economic growth.
We are not out of the woods yet
Because the health of the global economy and financial sector has declined since late 2021 due to worldwide inflation and coordinated tightening of monetary policy by many central banks, Goldman Sachs's stock has flatlined early then.
Data source: YCharts
The stock may only perform well once investors feel confident that the worst is behind us and the global economy won't descend into the abyss. Although many now say there's a new bull market, the economy is not entirely out of the woods yet. So there is some risk in investing today before analysts sound the "all clear" signal.
Big growth initiatives
Goldman Sachs has more than just cyclicality going for it. The company has several initiatives that should boost growth and profits long term.
First, although Goldman's traditional business focuses on the U.S. and Europe, it increasingly looks to Asia and Latin America to tap into markets with faster growth. It provides various financial services to companies in these regions, including investment banking, asset management, and trading, helping produce more revenue and profits.
Goldman Sachs is betting that the middle class, which shrunk in many Latin American countries during the pandemic, will return to growth in countries like Brazil after global growth resumes, creating demand for investment banking, asset management, and trading, which the bank is well positioned to provide.
In Asia, Goldman Sachs has been a significant player for many years. The firm has a strong presence in China, India, and other major Asian markets, helping it tap into the region's growth. As Asian economies continue to generate GDP faster than developed markets like the U.S. and Europe, the investment banking operation is poised to succeed in the region.
In addition to expanding its geographic reach, Goldman Sachs has invested in new technologies. The company has been developing artificial intelligence and machine learning tools to improve its financial services offerings. These investments have helped Goldman Sachs stay ahead of the competition and continue expanding its business.
The Marquee platform and Goldman's partnership with Apple (AAPL 0.04%) are two examples of its technology investments.
Marquee is a digital storefront for institutional client services, designed to provide them with a single access point to Goldman's full range of services. It is a cloud-based platform designed to be scalable and flexible. Clients can access the platform on any device from anywhere in the world.
In 2019, Goldman Sachs launched Apple Card integrated with Apple Wallet -- a credit card designed to be simple, transparent, and rewarding. Apple Card users can earn daily cash back on their purchases and see their spending in real time.
The partnership between Goldman Sachs and Apple is a win-win for both companies. Apple gets access to Goldman Sachs's expertise in financial services, and Goldman Sachs gets access to Apple's large and loyal customer base. The partnership is also a win for consumers who gain access to excellent financial services.
Considering all these factors, Goldman Sachs is a compelling investment opportunity today for investors with a five-to-10-year time horizon.
