Goldman Sach's Earnings Preview

Goldman (GS) reports on Thursday and for a stock trading at only 8 times earnings, a blowout number could cause the stock to vault upward.

Fortunately for shareholders (I am one) the recent market turmoil that has dragged Goldman down with it, will be the very thing that enables them to exceed expectations. Financial's have been hit hard due the "subprime meltdown" (have you heard anything about it?) and rather that search for those companies that are most exposed to this market, the whole group, including Lehman (LEH), Bear Sterns (BSC) and Morgan Stanley (MS) got whacked.

Why not Goldman? Let's start with 51% of Goldman's earnings and get them out of the way. They come from overseas (and that percentage may actually be increasing) and will not be affected at all by the US mortgage market. These earnings will increase as activity abroad is surging.

The majority of Goldman's US revenues are derived from trading activities, for which the current volatility in the markets is advantageous. Consider this: Much had been made of Goldman's decision to invest $2 billion in one of it's funds in August as there was a run on hedge funds. Word is that to date that investment has seen a 30% return for Goldman. Current earnings estimates are for $4.30 to $4.50 a share.

I am looking at much closer to $5 a share ($4.80 and above). People have placed way too much emphasis on the mortgage market and it's relation to Goldman. In all reality, Goldman is a play on the global economy, not a segment of the US economy. There is good news though. Let's say they only hit the $4.30 estimate. Trading at only 8 times earnings, where is the stock going? It is practically being given away now. We recently picked up more at $176 and any additional fall from here would be anther buying opportunity. Alas, I doubt it will happen.

What is much more likely is that several months from now a whole lot of people are going to be cursing themselves wishing the had bought shares in this company at these ludicrously low prices..