view original post

Goldman Sachs Group headquarters in New York City.

Michael Nagle/Bloomberg

Wall Street is on sale along with the much of the stock market, as industry leader Goldman Sachs Group is trading close to book value for the first time in two years.

Smaller securities firms like Jefferies Financial Group (ticker: JEF) and Cowen (COWN) are trading below tangible book value. Banking giant Citigroup (C) has one of the cheapest stocks among major financials, at less than 60% of tangible book value.

Buying securities firms below book value could reward investors since book value—or shareholder equity—is a proxy for liquidation value. Firms like Goldman Sachs (GS) have remained highly profitable and have asset-light businesses like investment banking and asset management that likely are worth considerably more than book value.

Book value includes intangible assets including goodwill, while tangible book is a more conservative measure that that strips out intangible assets.

Investors are concerned that investment banking business, already soft in the first quarter, will get weaker and that trading results will suffer.

Goldman shares are down 0.3%, at $300.70, in recent trading, just above their March 31 book value of $293 a share, and are off 30% from their record high of $426 in November 2021.

Jefferies is off 0.3%, at $30.45, and trades below its tangible book value of $33 a share. Cowen is down 0.9%, at $23.54, which is below its tangible book value of $27 a share. Citigroup is off 1.8%, at $46.83, after hitting a new 52-week low in the session. It trades way below its March 31 tangible book value of $79 a share.

Analyst Glenn Schorr of Evercore ISI Group told Barron’s Thursday morning that Goldman Sachs stock looks appealing. “GS at book is supposed to be bought and eventually works,” he noted in an email. Barron’s has written favorably on Goldman, including an article earlier this year when the stock traded around $345.

Investors are putting the firm’s record 2021 in the rearview mirror. Goldman earned a record $59.45 a share and generated an outsize 23% return on equity. First-quarter earnings of $10.76 a share were down 42% from the year-earlier quarter, but Goldman still earned a 15% return on equity.

Goldman’s results are harder to predict than those of banking-focused JPMorgan Chase (JPM) or Bank of America (BAC) because of its reliance on trading and investment banking, but Goldman is expected to earn about $38 a share this year. The stock trades for about eight times forward earnings.

The firm has exposure to the stock market through an $18 billion portfolio of equity investments, with most of that total in private investments. Goldman recorded a loss of $367 million in first quarter from that portfolio, against a $3 billion gain in the year-earlier period, and could take write-downs in the current quarter if markets don’t improve.

The valuations of privately held companies are slower to move than those in public markets, but the values of many private technology firms have come down sharply this year. About half the Goldman portfolio is in technology, media and telecom, and real estate.

Goldman has been consistently profitable even in tough quarters like the first three months of 2020, and its trading business often does well in volatile markets.

Jefferies and Cowen get most of their revenue from investment banking. Jefferies now trades at eight times projected 2022 earnings and Cowen at roughly five times estimated 2022 profits.

Write to Andrew Bary at