Book value equates to the liquidating value of a company and often offers a floor underneath a stock. Goldman remains highly profitable and should be worth more than the liquidating value of its assets, which are mostly liquid securities.
Buying Goldman below book during 2020 in the $200 a share range was a winning strategy, as the stock more than doubled to over $400 in late 2021 on the back of record 2021 earnings of about $60 a share. The company—and the banking industry at large—are in better shape than they were in 2020.
Goldman’s dip comes amid a sharp drop in banking stocks:
Wells Fargo
(WFC) also dropped below book value Friday, while
ក្រុមហ៊ុន Citigroup
(C) languishes at a deep discount to book. The
SPDR KBW Bank exchange-traded fund
(KBE) fell 3.5% Friday to $45.56.
Wells Fargo
,
whose shares dropped 6.1% Friday to $40.08 each, now trades below its first-quarter book value of $42 a share.
ធនាគារ Citi
group, whose stock fell 4.5% to $47.71, trades for about half its book value of $92 a share— and appreciably below its tangible book value of $79 a share.
Berkshire Hathaway
(BRK/A, BRK/B) took a $3 billion stake in Citi, whose stock yields over 4%, during the first quarter.
The other members of the Big Six of U.S. banking—
JPMorgan Chase
(JPM),
ក្រុមហ៊ុន Morgan Stanley
(អេសភី) និង
ធនាគារអាមេរិច
(BAC)—trade above book value.
ធនាគារអាមេរិច
,
whose shares fell 3.9% on Friday to $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’s surprising is that we estimate BAC would still have ROTCE (return on tangible equity) of 10%+ in a recession, implying that not only does the stock price in a recession today but that it trades at a 15%-20% discount to historical levels,” Mayo wrote on June 1, when the bank’s stock was at $37. At the time, Mayo saw 40% upside.
របស់បារុន has written favorably on both J.P. Morgan and Goldman this year, arguing both stocks looked inexpensive given solid profit outlooks. The six leading banks now trade for just seven to 10 times projected 2022 earnings, with Goldman and
ក្រុមហ៊ុន Citigroup
at the bottom of the group with price/earnings ratios of seven.
Investors worry about recession risks, and stock buybacks should be more muted this year. But one powerful positive that seems to be getting ignored by investors is that higher short rates this year should provide a nice boost to banking profits.
សរសេរទៅលោក Andrew Bary នៅ [អ៊ីមែលការពារ]