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Chris Bell | 'There are tons of different factors that go into ranking well, but the biggest is high quality content.' |
| - David Sinick |
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Chris Bell | 'There are tons of different factors that go into ranking well, but the biggest is high quality content.' |
| - David Sinick |
Goldman Sachs has been in business for 149 years which is important because they've had to appoint new CEOs multiple times and they've been through severe economic recessions and depressions, successfully withstanding the added pressure. All signs point north and forward for NYSE: GS because they're still making billions of dollars 149 years later, through wars, depressions and stock market crashes, while prevailing and prospering afterwards. This isn't a reason to buy a company on the NYSE in itself, however it adds to the reassurance of the investor that they won't go out of business tomorrow, even if there's a huge problem in the economy that impacts every company. GS has proven that they can withstand the added external pressures aside from the daily internal pressures
Buy the entire company today for pocket change; $85 Billion.
Goldman Sachs' balance sheet is strong, growing and well organized. They have $75 Billion of equity and $71 Billion of net tangible assets which is amazing progress in 149 years (1/2 Billion per year since conception). This is a positive reason on my list because of how it compares to the market capitalization, which is $85 Billion at the price of $225 in October 2018. I could buy all the shares, own Goldman Sachs and be the CEO if I pay $85 Billion today. The best part is that I get $75 Billion of "stuff" or total net tangible assets to sell when times get tough. If I buy a company for $85 Billion, then I'd ave $75 Billion in net tangible assets the next day, along with $6 Billion in net income. That way, I'd get my money back in 2 years.
The income statement is mostly positive too, going from $8 Billion in net income in 2014, to $5.5 Billion in 2015, to $7 Billion in 2016 and to $3.6 Billion in 2017. Based on the quarterly figures, it appears GS might make $5 Billion in 2018, so we'll base the calculation on their 4-year-average earning power, $6 Billion per year, and continue adding it to the balance sheet to see how long it takes to get our money back. First, we buy GS for $85 Billion ($225/share) and immediately secure $71 Billion on net tangible assets. Think about buying yourself as a company and liquidate everything you have until you're naked on the street. Once you pay off everything as well, how much do you have? Goldman Sachs has $71 Billion but it costs $85 Billion to buy them.
$71 Billion + 6 + 6 + 6 + 6 + 6 = $101 Billion
After 2 years of owning Goldman Sachs I'll end up with $83 Billion and it only cost $85 Billion to buy. Most investors want to make their money back in 5 years, yielding 20% without compounding, and this investment will take 2 years to get our money back making it a very high rate of return. It's hard to say that net income of $6 Billion will last forever, but they've been doing it for 4 years and been in business for 149 years, so it's definitely possible to go a few more years at that rate.
There are 3 things I like to consider when reviewing the cash flow statement for any company which are Dividends Paid, Buy Backs and Net Borrowings. Goldman Sachs is paying a dividend of $3.20 per share (1.50%). Goldman Sachs buys back their shares at an average of $3.7 Billion per year over the last 4 years. When a company buys back their shares with profits it tells you that they think it's an attractive price and that your shares will be worth slightly more. Goldman Sachs is currently taking on new debt in the amount of $17 Billion per year over the last 4 years. As an appreciative shareholder, they use $3.7 Billion to buy back shares and $1.7 Billion to give a dividend which makes it attractive to hold long term. They make $6 Billion per year and continue to give back to the shareholders.
The final reason I would buy or recommend Goldman Sachs stock is that they ONLY have $4 Billion of Goodwill and intangible assets on their balance sheet. The equity level is $75 Billion, and the net tangible asset level is $71 Billion because of $4 Billion in Goodwill. This means that Goldman Sachs bought a company, or multiple companies, in the past, for $4 Billion more than their book value. I always subtract the goodwill and intangible assets from the equity on the balance sheet because you can sell it, but it's not bad because GS only has $4 Billion.
In conclusion, the top reasons to buy Goldman Sachs stock is the balance sheet, income statement, cash flow statement and the length of time in business. I like to invest my money into assets that make annual income, like a dividend or a piece of real estate with rental income. When stocks don't offer a dividend I'd rather invest my money into companies that do, firstly, where the book value is close to the market capitalization, where the income will return my investment within 5 years and where the company buys back their shares. Goldman Sachs looks like a great investment because I could buy the entire company for $85B, be the proud owner of $75B in equity and profit $6B per year. The numbers work!
Written by: Chris Bell