After a tough five years, many investors are wondering whether they can still count on Goldman Sachs (NYSE:GS).
When we stack Goldman up against other banks and investment banks, it hasn't really been a terrible five years in terms of company performance. But when it comes to brand bashing and a general dragging-over-the-coals on the PR front, Goldman has had a rough go of it.
But can this much-maligned investment bank still make a good investment? Let's take a closer look.
Goldman's big edge
For a business-oriented investor with a long-term focus, a crucial ingredient in any investment is finding something that sets a given company apart from its competitors. Something that allows the company in question to pocket more profit than competitors dead-set on eating its lunch. Something that gives it what Warren Buffett calls an "economic moat."
Goldman Sachs has just such an economic moat in its globally recognized brand. Brand expert Interbrand listed Goldman's brand as the 48th most valuable in the world in 2012, with an estimated value of $7.6 billion.
Unlike consumer-products companies like Adidas (OTC:ADDYY) and Nintendo (OTC:NTDOY), or even competitors like Citigroup (NYSE:C), the power of Goldman's brand doesn't show up in its ability to market to mass-market consumers. Instead, the Goldman Sachs logo is a symbol of smarts to corporate clients around the world.
To large corporations looking to make an acquisition, Goldman is a first choice to help them identify the right target and nab it for an attractive price. For businesses of all types – from agricultural giants to airlines and miners – Goldman is a preferred choice to help structure and trade tailored derivative contracts that help mitigate swings in commodity prices and other financial risks. For institutional investors, Goldman's traders are a top pick to help execute large trades that are tricky to pull off without making a splash in the market. And the list goes on. The bottom line is that the strength of Goldman's brand allows it to bring in more attractive business and charge higher rates than its competitors.
At the same time, Goldman's brand and image help it attract some of the best and brightest that the world has to offer. All else equal, would most hot baseball prospects rather play for the Arizona Diamondbacks or the New York Yankees? The Yankees, right? The math is the same at Goldman. Top finance whizzes -- and, frankly, PhDs of many different flavors -- coming out of schools like Princeton, Harvard, and Stanford have lots of banks knocking at their dorm room door, but Goldman typically has an edge in getting those grads to sign on the dotted line.
All of this taken together creates a virtuous circle. Goldman is seen as the top-notch bank to work at and do business with. As a result, it wins more business and attracts better people. Those competitive wins and whip-smart employees then reinforce the bank's image. And so on.
As noted above, this all-important brand has taken a bit of a thumping in recent years, and investors have reason to be concerned about that. However, the damage appears to have been far shy of mortal and -- for better or worse -- short memories in the media mean that there's (almost) always room for repairing a brand.
Yes, but is it a good investment?
From an investor's perspective, though, even a great company can be a poor investment at the wrong price. But Goldman's stock appears to be at a very right price currently. With the stock trading right around its tangible book value, it's not much of an exaggeration to say that it's trading at historical lows. Between Goldman's 1999 IPO and year-end 2011, there has not been a single year where its average price-to-tangible book value has been at or below 1. Prior to 2008, the low for that figure was 2.05, which was in 2003.
So Goldman Sachs, a highly respected investment banking kingpin, currently has a stock trading at marked lows. Is that opportunity knocking? It sure sounds like it.