Goldman Sachs Group, Inc. (GS): Why Now Is the Time to Invest in the Smartest Guys on Wall Street

Alternatives: Morgan Stanley and Nomura Holdings

There are plenty of good choices in the sector right now, as I feel that financials are generally cheap. I just recently posted an article about Morgan Stanley (NYSE:MS), the other big investment bank turned bank holding company. Those who are interested in Morgan Stanley (NYSE:MS) as an investment should read that entire post, but in a nutshell the company trades at a relatively cheap valuation of just 11.8 times earnings with very nice growth projected. I believe Morgan Stanley (NYSE:MS) is less risky than Goldman Sachs Group, Inc. (NYSE:GS) due to having a less-leveraged balance sheet and relying less on risky revenue streams (like trading).

Nomura Holdings, Inc. (ADR) (NYSE:NMR) is a less followed alternative, and is a Japanese financial holding company. Nomura Holdings, Inc. (ADR) (NYSE:NMR) attempted to take advantage of the U.S. financial crisis and acquired Lehman Brothers’ Asian operations for just $225 million. Nomura Holdings, Inc. (ADR) (NYSE:NMR) has many subsidiaries with operations in financing, asset management, trading and brokerage, underwriting, and more. Nomura Holdings, Inc. (ADR) (NYSE:NMR)’s earnings were hit especially hard by the financial crisis, and are just now beginning to rebound, making a P/E analysis meaningless. If the company does manage a real earnings turnaround, this could wind up being the most profitable of the three.

Where could Goldman go?

Goldman Sachs Group, Inc. (NYSE:GS) is currently trading at just above its tangible book value of $149.45 per share, a significant discount to its peers and historical average. Historically, Goldman has traded between 1.2 and 1.5 times book, so using the midpoint of that gives us a price target of $201.76. Admittedly, this is a stretch, so using their historic P/E ratio of around 12 times TTM earnings this gives us a 1-year target price of $184.20 if the analysts’ projections prove accurate.

The article Why Now Is the Time to Invest in the Smartest Guys on Wall Street originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs Group, Inc. (NYSE:GS). Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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