We recently compiled a list of the 7 Best Bank Stocks To Buy in 2024. In this article, we are going to take a look at where The Goldman Sachs Group, Inc. (NYSE:GS) stands against the other bank stocks.
The largest dip since August occurred in U.S. stocks on September 4, 2024, when the market fell 1.6%. The decline was mostly caused by drops in the technology and energy markets amid economic uncertainty. The market remained volatile, and worries about jobs and economic data mounted, as the August BLS report shows the US created fewer than anticipated jobs in August 2024. Nonfarm jobs grew at 142,000 but remained below the Dow Jones forecast of 161,000. However, the unemployment rate went down from 4.3% in July to 4.2% in August.
Treasury yields dropped to 3.85% as investor attention turned to impending payroll data that may have an impact on the Fed’s interest rate decisions. Despite a historically challenging September, some analysts see possible drops as buying opportunities, citing investors’ controlled inflation and high cash reserves.
Despite the financial volatility, the financial services industry’s long-term outlook is still favorable. As we discussed in our article “25 Biggest Financial Firms in the World,” the financial services industry is projected to grow at a 7.7% CAGR from $31138.82 billion in 2023 to $33539.52 billion in 2024.
According to IBM’s report, financial services are being revolutionized by generative AI, which increases productivity and automates tasks. AI speeds up fraud detection by 50% and decreases transaction processing times by 30%, as per IBM’s survey. While 75% of financial workers expect AI to automate 25% of their duties, it aids in the analysis of market trends in investment management. AI-driven chatbots reduce human labor by 80% and increase query processing accuracy by 85% in customer support. Furthermore, generative AI improves data management in CRM systems by automatically summarizing calls and extracting insights, boosting CRM update efficiency by 30% and saving companies millions of dollars in operating expenses while strengthening client relationships.
Specifically, the global retail banking market was valued at $2.08 trillion in 2023 and $2.21 trillion this year, according to the Precedence Research. The market is projected to grow at a CAGR of 6% to reach approximately $3.97 trillion by 2034, per the research. In 2023, Asia Pacific held the highest share of 34.14% in the market. It is anticipated that North America is predicted to be the second-largest region for the retail banking market during the projection period.
Looking ahead, the 2024 U.S. Banking Industry Outlook Survey by KPMG outlines the major obstacles and prospects that banks face in the face of technological, regulatory, and financial disruptions. Of the 200 banking CEOs surveyed, 65% claimed that generative artificial intelligence is an integral part of their institution’s long-term vision and strategy, and 60% said that their companies have GenAI-enabled cybersecurity in both pilot and production stages. Despite challenges including interest rate risks and geopolitical unpredictability, two-thirds of executives are still confident in their bank’s growth prospects, with 59% predicting inorganic profitability growth. Regulatory intensity dominates focus, with 80% thinking regulatory supervision and enforcement in the area of cyber risk will increase, while 55% of institutions have boosted their resources to manage cyber threats. Moreover, following the Fedwire and SWIFT deadlines in November 2025 and March 2025, respectively, ISO 20022 compliance is a top priority for U.S. banks.
Methodology:
We sifted through holdings of bank ETFs and financial media covering bank stocks to form an initial list of 20 bank stocks. Then we selected the 7 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A close-up of a financial advisor giving advice to a customer, demonstrating the importance of consumer and wealth management.
The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Investors: 68
One of the top asset management and investment banking companies in the world is The Goldman Sachs Group, Inc. (NYSE:GS). Investment banking accounts for about 20% of its revenue, trading for 45%, asset management for 20%, wealth management for 15%, and retail financial services for 15%. The Americas account for over 60% of the company’s net revenue, followed by Asia at 15% and Europe, the Middle East, and Africa at 25%.
The projects that GS has been working on over the past few years are being refocused. It highlighted three priorities at its investor day in 2023. It aims to increase customer wallet share and expand its financing business in its trading and investment banking operations. It also plans to boost its management fees in asset and wealth management, particularly in wealth management, and raise outside funding for its alternative business. Its goal with its new platform company is to grow and turn a profit.
After the bank stopped its consumer banking projects, including a $470 million loss from the closure of its Marcus loan, the stock recovered during the previous year.
The company announced $12.73 billion in revenue, a 21.10% YoY growth, and $3.04 billion in net income for Q2 2024. The growth was driven by its strong performance in its Asset & Wealth Management and Global Banking & Markets segments. In each of these categories, revenue growth was 27% and 14% YoY, respectively.
Ariel Appreciation Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2024 investor letter:
“Shares of global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also rose in the period following solid earnings results, highlighted by strength in fixed income, currencies 1 Sindreu, Jon. “The Second Quarter Split the Market.” The Wall Street Journal, July 1, 2024, p. B9. and commodities (FICC) as well as equities trading and better-than-expected investment banking fees. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and working to improve profitability in Platform Solutions by 2025. With the possibility of increased capital requirements from its regulators, GS plans to reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”
A buy rating for Goldman Sachs with a $571 price target was confirmed by Jefferies analyst Daniel Fannon, who cited the company’s solid performance in its alternatives business and anticipated margin increase. According to Fannon, new initiatives and fee hikes would enable GS to boost its operating margin in Asset & Wealth Management from 23% in H1 2024 to a mid-20% by early 2025.
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company, with 5,658,587 shares worth $2.36 billion.
Overall GS ranks 5th on our list of the best bank stocks to buy. While we acknowledge the potential of GS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.