The public-relations folks at both Goldman Sachs
Long before the April 20 oil spill in the Gulf made BP a target, Goldman Sachs topped Main Street's spit list, held up time and again as the prime example of everything wrong with high finance. As the public's designated scapegoat, Goldman provided good cover for the similar shenanigans of JPMorgan
And that's not even mentioning the black box that is Wall Street's profit machine.
Meanwhile, BP faces all sorts of downsides, from cleanup liability to legal liability, from future regulations to brand impairment. There's even speculation of a buyout somewhere down the road. BP clearly faces situation-specific risk that an ExxonMobil
Of course, shares of BP are down 35%-40% since before the Gulf disaster, while ExxonMobil is down only 10%-15%.
With both BP and Goldman well off their 52-week highs, I asked some of our top analysts this question:
Which is a better bet right now: Goldman Sachs or BP?
Morgan Housel, Fool contributor
I'd go with BP.
In BP's case, I feel like there's overreaction to the potential cost of the disaster, and an underappreciation for how easily it could leverage up its balance sheet and swallow even a massive cost without skipping a beat. The odds seem heavily weighted in opportunistic investors' favor.
With Goldman, I think there's underappreciation for how reliant it is on fixed-income trading, and how much forthcoming financial regulations could nuke its trading profits. There's this sense that because Goldman has a history of making insane amounts of money, it's somehow invincible. I don't buy that. Just from a reform sense (not to mention how current profits are probably about as good as they can get, thanks to 0% interest rates), Goldman's future looks pretty hairy.
Rick Munarriz, Fool contributor and Rule Breakers analyst
We should call this roundtable "Dumb and Dumber," since it's hard to get excited about either company.
The better bet as an investment would be Goldman. Sure, BP is rich in assets and has a lucrative business, but the ultimate tab here -- in outlay of capital and the court of public opinion -- is still unknown. Goldman's fate is a matter of how hard a slap on the wrist it will receive.
Tim Beyers, Fool contributor and Rule Breakers analyst
Anyone else feel dirty answering this question? It's like choosing between spinach and lima beans, or The Hills and America's Next Top Model. There's no good option here.
But that's my take as a growth investor; digging in the mud isn't my style. I'd rather buy into massive yet mispriced opportunities, and leave the turnaround stories to those who enjoy eating leftovers off others' plates.
That said, I do believe in betting on great investors, and I know Warren Buffett is staying with Goldman Sachs. I think there's a good reason for this: Investment banking can be a good business, and the Great Financial Meltdown either eviscerated or outright destroyed many of Goldman's competitors.
BP could be a great value play at these levels, if we had a better idea about the financial fallout of the Gulf of Mexico disaster. But I don't think that's the case. Instead, we're operating off of mostly finger-in-the-wind guesses for valuing a business whose reputation will remain tarnished for years to come.
Alex Dumortier, CFA, Fool contributor
The potential for finding a deep value play between these two stocks is significant, but let's not overlook the potential for downside, either. After all, BP and Goldman Sachs both displayed a cavalier attitude in the oversight of volatile, toxic assets. And following a huge blow-up, both companies ended up befouling their environment at tremendous cost to customers and shareholders. As a result of their respective crises, both companies are now under enormous political, regulatory, and media scrutiny.
Last Friday, I identified BP as the best stock right now. I meant that, at 5.5 times forward earnings per share, the oil major looks like a terrific candidate for a deep value play. At 7.5 times forward earnings, Goldman doesn't look pricey, either, and the bank has been gushing extraordinary profits recently.
However, as my colleague Morgan Housel has repeatedly warned, that's largely the result of an exceptionally favorable interest rate environment, which simply can't last. Meanwhile, the medium-term outlook (over the next two to four years, say) for the main macro factor behind BP's profitability -- the price of oil -- looks more favorable to me. Peak oil trumps peak interest rate spreads here, so I'm going with BP over Goldman.
Tie game, folks
Our analysts are split, but you can break the tie by voting in our Fool Poll. Then share your thoughts in the comments section below.
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