Love it or hate it, there's no denying Goldman is a force to be reckoned with. When these guys predicted that oil would surge to $100 and beyond back in 2006, many Fools laughed. The laughing stopped when oil proceeded to do just that. And when Goldman followed up its $100 prediction with a call for $200 oil just two years later, not only did no one laugh -- investors actually bid up oil futures, helping Goldman to fulfill its own prophecy. (Almost.)
For good reasons or ill, this banker's opinions remove markets – so even if you don't agree with Goldman, it's worth keeping an eye on what it's up to.
Goldman fires it up
So far this month, the big news at Goldman has been the turnaround on coal and steel stocks. Early in March, the megabanker took an aggressive stance on steel prospects. Noting a rise in raw material prices -- steel scrap in particular -- Goldman predicted an imminent rise in the price of iron ore and coking coal. And while some people might see this as a troublesome point for steelmakers, what with their having to pay for these more expensive raw materials and all, Goldman insists that this trend is actually good for big steel -- giving companies like U.S. Steel
Result: Goldman upgraded U.S. Steel to "buy" -- and predicted we'll see the stock hit $70 within six months.
And now for something a little different
Goldman's next move was a little more logical. Within a few days of issuing its bullish pronouncement on the rising cost of iron and coal, Goldman took the very reasonable step of upgrading … coal stocks. Forecasting "tight" capacity in the industry, Goldman predicted that hard coking coal will fetch $200 a metric ton in Asia this year, and raised its price targets on a number of miners, like Alpha Natural Resources and Arch Coal, Consol Energy
If all of this has you thinking that Goldman's uber-bullish on the economic recovery, though, think again. To the contrary, while the banker's shifted its view of raw materials demand forward a few months, if you look only a little bit farther out, you'll see Goldman's optimism starting to peter out. Goldman sees coal prices declining year over year in 2011, and then again in 2012, down to $160 per metric ton.
And now for something completely different
Consonant with this muted optimism, Goldman struck a cautious note in another sector entirely last week. Taking a break from its day in the mines, Goldman returned to familiar turf in the banking sector -- but what it saw there isn't particularly encouraging.
Arguing that investment banking profits are due to plunge, Goldman reiterated a sell rating on Jefferies Group Friday, and took a neutral stance on Morgan Stanley and Citigroup
Goldman sees revenue within this corner of the banking market surging 69% sequentially in the first quarter, and believes that at least a couple of its rivals -- JPMorgan Chase
Foolish final thought
Whatever your opinion of Goldman's acuity in commodities forecasting, there's little doubt that the company's a force to be reckoned with in the banking world. If anyone has a handle on which banks will prosper from a surge in fixed income and currency trading, it's Goldman. And I have to say that after scanning the numbers, it appears JPMorgan and Bank of America would be the best bets in this industry in any case.
For its part, JPMorgan sports a price-to-book ratio right in the center of the pack of banks named, at 1.10. Yet JP also boasts the strongest profit margin of the bunch (17.1%, net) and an expected 8% annual rate of profit growth for the next five years. Meanwhile, on B of A's side of the ledger, we find a name-brand bank trading for just 0.76x book value (on par with Citigroup), and producing an 8.8% net profit margin from its business (in contrast to Citi's negative profit margin).
Once again, I think Goldman's called it right.