While Goldman Sachs Group, Inc. (NYSE:GS) beat estimates for the top line in its financial results for the second quarter, a $1.45 billion provision for litigation and regulatory proceedings related to mortgages which were at the heart of the financial crises, ended up denting the bottom line. Diluted EPS came in at $1.98, while revenues totaled $9.07 billion for the quarter. Analysts expected EPS of $3.89 and revenues of $8.78 billion. However, the financial holding company did manage to report its highest revenues for the first half of the year in five years. The Investment Banking segment saw an increase of 13% from the same quarter last year, as it posted $2.02 billion in revenues. This was made possible by the second-highest quarterly performance in Underwriting and strong figures from Financial Advisory. Investment Management also posted its second highest quarterly performance, bagging $1.65 billion. Following the second quarter, equities have posted their strongest half year result in six years by contributing $4.32 billion to the top line during the first six months of the year. However, shares of Goldman have fallen by a little more than 1% in morning trading as investors had even higher expectations for the company. Nonetheless, CEO Lloyd Blankfein remarked, “We are pleased with our performance for the quarter. While uncertainty in the EU weighed on investors’ level of conviction, many of our businesses continued to benefit from generally improving economic conditions and healthy client activity.”
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Smart money showed an increased interest in the $90.78 billion global investment bank during the first trimester. Among the funds that we track, a total of 60 had an aggregate investment of $6.26 billion in Goldman Sachs Group, Inc. (NYSE:GS) at the end of March, compared with 57 firms holding $6.05 billion in shares at the end of last year. The stock was trading nearly sideways during this period.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like hedge funds can, since they have the knowledge as well as resources to conduct such an analysis. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 80 percentage points and returning over 139%, while hedge funds themselves have collectively underperformed the market (read the details here).
Insider trading can provide valuable insights into the management’s perspective of the company’s future prospects. With regards to Goldman Sachs Group, Inc. (NYSE:GS), no insider purchases have been detected so far this year, but two prominent sellers include Goldman’s CEO Blankfein, who has disposed of some 212,000 shares so far this year, and President and COO Gary Cohn, who has sold about 212,000 shares during the same period. However, it must be borne in mind that since insider selling can occur due to a wide range of reasons it is not as strong a signal as insider purchases.
Let’s move on to a more detailed analysis of the hedge fund activity pertaining to the company.
How have hedgies been trading Goldman Sachs Group, Inc. (NYSE:GS)?
According to hedge fund intelligence website Insider Monkey, Berkshire Hathaway, managed by the legendary investor Warren Buffett, holds the most valuable position in Goldman Sachs Group, Inc. (NYSE:GS). Berkshire Hathaway has a $2.37 billion position in the stock, comprising 2.2% of its 13F portfolio. The second-largest stake is held by Lansdowne Partners, managed by Alex Snow, which holds a $1.19 billion position; the fund has 10.7% of its 13F portfolio invested in the stock. Further peers that are bullish include Edgar Wachenheim’s Greenhaven Associates, Boykin Curry‘s Eagle Capital Management, and Richard S. Pzena’s Pzena Investment Management.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Goldman Sachs Group, Inc. (NYSE:GS). Balyasny Asset Management had a $46.6 million position in the company at the end of the first trimester. Robert Pohly’s Samlyn Capital also initiated a $39.8 million position during the same quarter. The following funds were also among the new GS investors: Leon Shaulov’s Maplelane Capital, Wayne Cooperman’s Cobalt Capital Management, and Matthew Tewksbury’s Stevens Capital Management.
We believe that litigation charges have provided an interesting entry point in the company, especially given that there is positive hedge fund sentiment surrounding the stock. Following the stock’s dip, we believe that it is a good buy.
Disclosure: None
