Goldman Sachs and Wells Fargo are now trading below book value. It’s time to jump.
The old saw is to buy
when it trades below its book value – and investors have that opportunity again.
Goldman Sachs Group
(ticker: GS) fell 5.5% in Friday’s selloff, ending at $287.56 each. Goldman is now trading below its first-quarter book value of $293 per share, marking the first time since 2020 that the investment banking leader has recovered less than book value or equity per share.
Book value equals the liquidation value of a company and often provides a floor under a stock. Goldman remains very profitable and should be worth more than the net asset value of its assets, which are mostly liquid securities.
Buying Goldman below the book in 2020 in the $200 per share range was a winning strategy as the stock more than doubled to over $400 by the end of 2021 on record 2021 earnings of around $60 per share. stock. Business – and the banking industry as a whole – are in better shape than they were in 2020.
Goldman’s plunge comes amid a sharp drop in bank stocks:
(WFC) also fell below book value on Friday, while
(C) languishes at a deep discount to book. The
Index-listed fund SPDR KBW Bank
(KBE) fell 3.5% on Friday to $45.56.
whose shares fell 6.1% on Friday to $40.08 apiece, are now trading below their first-quarter book value of $42 per share.
group, whose shares fell 4.5% to $47.71, is trading for about half of its book value of $92 per share – and significantly below its tangible book value of $79 per share.
(BRK/A, BRK/B) took a $3 billion stake in Citi, whose stock yields more than 4%, during the first quarter.
The other members of the Big Six of the American banking sector…
Bank of America
(BAC)—exchange above book value.
Bank of America
whose shares fell 3.9% on Friday at $33.17, now trades at just a 10% premium to book value.
Wells Fargo banking analyst Mike Mayo has an outperform rating on Bank of America, which is one of his top picks. “What is surprising is that we estimate that BAC would still have a ROTCE (return on tangible equity) of 10%+ in a recession, which implies that not only the stock price in a recession today, but is trading at a 15%-20% discount at historic lows,” Mayo wrote on June 1, when the bank’s stock was at $37. Mayo saw 40% upside.
Barrons wrote favorably of JP Morgan and Goldman this year, arguing that the two stocks looked inexpensive given the strong earnings outlook. The first six banks are now trading for only seven to ten times forecast earnings for 2022, with Goldman and
at the bottom of the group with price/earnings ratios of seven.
Investors are worried about the risks of recession and share buybacks should be more moderate this year. But a powerful positive that seems to be ignored by investors is that the rise in short-term rates this year should give bank profits a good boost.
Write to Andrew Bary at [email protected]