Is Goldman Sachs Group, Inc. (GS) A Good Stock To Buy?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Is Goldman Sachs Group, Inc. (NYSE:GS) the right investment to pursue these days? The best stock pickers are turning less bullish. The number of bullish hedge fund positions decreased by four during the fourth quarter. GS was in 59 hedge funds’ portfolios at the end of December. There were 63 hedge funds in our database with GS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American International Group Inc (NYSE:AIG), QUALCOMM, Inc. (NASDAQ:QCOM), and U.S. Bancorp (NYSE:USB) to gather more data points.

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Goldman Sachs’ stock has slid by 19% over the last 52 weeks, so before we take a closer look at the smart money sentiment, let’s see the latest developments surrounding the stock.

One of the main reasons for the decline of Goldman Sachs’ shares is the slowdown in the IPO sector expected this year. Goldman generates a significant portion of its revenue from underwriting equity. Last year, the number of IPO’s fell by 38% and amid volatility in global markets, investors fear a further decline in public offerings. On the other hand, Goldman also advises companies on mergers and acquisitions and experts forecast the M&A activity to remain strong this year.

Overall, the latest earnings season in the banking sector were better than expected, although some banks, including Goldman posted lower profits in year-on-year terms due to high legal costs and settlements related to the financial crisis period. Nevertheless, Goldman posted EPS of $4.68, higher than the $3.53 anticipated by analysts. While its revenue of $7.27 billion, topped the estimates of $7.07 billion, but was lower than the $7.69 billion figure reported a year earlier. Following the decline, Goldman’s stock seems attractive, trading at 0.8 times book value, below the banking industry average of around 1.1. In addition, the stock sports a dividend yield of 1.72% and the company has a substantial buyback program, which shows management’s commitment to return capital to shareholders.

Keeping this in mind, let’s check out the new action surrounding Goldman Sachs Group, Inc. (NYSE:GS).

What have hedge funds been doing with Goldman Sachs Group, Inc. (NYSE:GS)?

At the end of the fourth quarter, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 6% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the biggest position in Goldman Sachs Group, Inc. (NYSE:GS), worth close to $1.9752 billion, comprising 1.5% of its total 13F portfolio. Sitting at the No. 2 spot is Alex Snow’s Lansdowne Partners, holding a $722.5 million position; the fund has 5% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Edgar Wachenheim’s Greenhaven Associates, Boykin Curry’s Eagle Capital Management and Richard S. Pzena’s Pzena Investment Management.

Because Goldman Sachs Group, Inc. (NYSE:GS) has faced a declination in interest from hedge fund managers, it’s safe to say that there was a specific group of funds that decided to sell off their full holdings in the third quarter. Intriguingly, Michael Messner’s Seminole Capital (Investment Mgmt) cut the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $38 million in call options., and Anthony Bozza’s Lakewood Capital Management was right behind this move, as the fund said goodbye to about $25.3 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Goldman Sachs Group, Inc. (NYSE:GS). These stocks are American International Group Inc (NYSE:AIG), QUALCOMM, Inc. (NASDAQ:QCOM), U.S. Bancorp (NYSE:USB), and Toronto-Dominion Bank (USA) (NYSE:TD). This group of stocks’ market values are similar to GS’s market value.

As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $5.48 billion. That figure was $5.92 billion in GS’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (USA) (NYSE:TD) is the least popular one with only 14 bullish hedge fund positions. Goldman Sachs Group, Inc. (NYSE:GS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AIG might be a better candidate to consider a long position.