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Goldman Outshines in 2019: Rally to Continue This Year Too?

Zacks Equity Research

Shares of Goldman Sachs GS appreciated 37.6% in 2019, outperforming the S&P 500 (up 27.5%) as well as the Zacks Investment Bank industry’s growth of 18.2%.

This impressive price performance is backed by the gradually-improving operating environment and likely support from fee income on improvement in trading and investment banking performance. Though trading activities were muted all through 2019, the same is likely to have improved since the tail end of the year.

Positive developments related to the long-standing U.S.-Sino trade conflict, and strong probability of Brexit within Jan 31, 2020 might also be catalysts.

With the Federal Reserve is likely to keep interest rates unchanged this year, banks are anticipated to benefit from rise in demand for loans in the upcoming period. This, along with strong domestic economy, will keep boosting banks’ financials despite several geopolitical concerns. Lesser regulations are also expected to aid the company’s bottom line to some extent.
Moreover, fundamentally, solid prospects, driven by revenue growth, expense management, steady capital-deployment activities and technology advancement seem to be the reasons for this stellar performance.

Factors in Detail

The key source of Goldman’s earnings stability is its business diversification. Notably, Goldman has been undertaking initiatives to boost the GS Bank’s business, with its acquisition of the online deposit platform of GE Capital Bank in April 2016. It also rolled out a digital consumer lending platform — Marcus by Goldman Sachs. Additionally, the company is likely to benefit from its exposure to the fast-growing exchange-traded funds (ETF) market.

In addition, Goldman’s solid global position and completed M&As will likely lend it a further edge over peers. Moreover, the bank benefited over the past few years from its successful expense-reduction initiatives. Notably, the company completed an expense initiative and generated nearly $900 million of run-rate savings. The company is focused on improving efficiency while maintaining strong franchise and investing in new opportunities.

Driven by a solid capital position, Citigroup remains committed toward enhancing shareholders’ value on steady capital-deployment activities. The company’s approved 2019 capital plan includes up to $7 billion in repurchases and $1.8 billion in total common stock dividends beginning third-quarter 2019 through second-quarter 2020. Following the approval, the company increased its quarterly dividend to $1.25 in July 2019.

This apart, Goldman is part of the industry, which currently carries a Zacks Industry Rank #67 (top 27%).

Additionally, estimates for this Zacks Rank #3 (Hold) stock have been witnessing upward revisions, of late. Over the last 30 days, the Zacks Consensus Estimate for 2020 earnings moved north.

Goldman’s earnings jumped 4.71% annually over the last three to five years. The earnings growth momentum is anticipated to continue in the near term as well. The company projects EPS (earnings per share) growth of 10.47% for the ongoing year.

Stocks to Consider

E*TRADE Financial Corporation ETFC has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has rallied more than 3% in 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

JPMorgan Chase & Co. JPM has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 42.8% in 2019. At present, it carries a Zacks Rank of 2.

State Street Corporation STT has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 25.4% in 2019. It currently carries a Zacks Rank #2.

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