Is Goldman Sachs a Good Portfolio Play?

With shares of Goldman Sachs (NYSE:GS) trading around $166, is GS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Goldman Sachs is engaged in investment banking, securities, and investment management. It provides a range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments, and high net worth individuals. The company operates in four segments: investment banking, institutional client services, investing and lending, and investment management. Through its segments, Goldman Sachs provides valuable investment services to consumers and companies worldwide.

Goldman Sachs and Bain Capital LLC have agreed to pay a combined $121 million to settle a closely watched lawsuit alleging that many of the U.S.’s biggest buyout firms colluded to keep down the prices they paid for companies during last decade’s takeover binge. Goldman and Bain will pay $67 million and $54 million, respectively, according to papers filed with the U.S. District Court in Boston on Wednesday. Both firms deny any wrongdoing in the settlements, which require court approval. “We continue to believe the case is meritless and baseless, but ultimately determined that it was best for our investors and our firm to put this matter behind us in light of the costs and distraction of six years of litigation,” said a Bain spokesman. “We’re pleased to put the matter behind us,” said a spokeswoman for Goldman’s private-equity arm. The case was brought by investors who sold their shares in 27 companies to a number of private-equity firms as part of several boom-era buyouts.

T = Technicals on the Stock Chart are Strong

Goldman Sachs stock has not made significant progress over the last couple of quarters. However, the stock is currently moving higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Goldman Sachs is trading above its rising key averages which signal neutral to bullish price action in the near-term.

GS

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Goldman Sachs options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Goldman Sachs options

18.70%

83%

80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.