One of the best features of Real Money Pro is that we can disagree with each other. There is no pressure, at all, to chime in with others analysis and conclusions.
By means of background, I have followed Goldman Sachs since it went public. (Interestingly and in full disclosure, Goldman was the only job interview I was rejected from - after seven interviews! - when I graduated Wharton).
Over the last few years I have held GS three times as an investment - all profitably - since I put GS on my Best Ideas list in Decwember, 2018 at $169/share.
My last sale was done recently (at $206-$207) - prior sales at around $240/share. My cumulative appreciation on those trades has been meaningful.
In the recent Covid-19 led market drop, I continued to add - ultimately at prices as low as $132/share (on about March 19th).
Today the shares are around $220/share, nearly up +$90 from mid-March.
Goldman's businesses can be separated into several parts: consumer, trading, capital markets (fixed income, foreign exchange and commodities), investment banking, and wealth management.
Investment banking was very strong (a quarterly revenue record) and I continue to expect a renaissance of M&A activity reflecting the widening schism between have and have not companies which should lead to consolidation on a broad scale.
Goldman also has a large wealth management business. This is a low P/E business because it is highly competitive and, increasingly, commoditized - meaning, less profitable.
But trading and capital markets contributed most to the surprise upside in the quarter - the best in nearly a decade.
Where I disagree with Jim is that the markets historically don't pay much for trading and capital markets strength, and the quarter's results are not likely sustainable. In other words, even more than GS' wealth business, it is the low P/E product line that investors won't likely pay up for.
From my perch, Goldman Sachs is a worthwhile holding - but at a price.
Trading up from $130 to $220 since mid-March - and given my plethora of macroeconomic concerns - I don't see the outstanding reward to the upside vs. the downside risk that Jim sees.
(This commentary originally appeared on Real Money Pro on July 16. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)