Follow the Profits in the Financial Sector

Big banks have kicked off earnings season. And there’s been a mixed result overall. Most banks are taking a more conservative approach, as benefits the Fed’s “higher for longer” strategy on interest rates.

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  • However, while bank lending activity is down, the market’s strong return is helping banks that have a large wealth management division to make better profits right now. That’s a trend that could likely continue.

    It’s a trend that bodes well for Wall Street investment bank Goldman Sachs (GS). Overall earnings rose 50 percent, and wealth management revenue rose by a hefty 23 percent.

    Those returns handily beat analyst expectations, and indicate that financials could still be undervalued here.

    Goldman now trades at 10 times forward earnings, a low valuation for one of Wall Street’s most revered brands.

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  • Plus, shares are up less than 10 percent over the last year, lagging the S&P 500. That trend could reverse if earnings continue strong.

    Action to take: Investors may like shares here, as a multi-year bull market in stocks could lead to bigger profits in the years ahead. Goldman also pays a 2.9 percent dividend yield at current prices.

    For traders, the July $400 calls, last going for about $19.00, could see low-to-mid double-digit returns on a rally higher for shares in the next six months.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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