Okay, so I wrote in the run up to Goldman's earnings that the stock was a good buy on the gut reaction sell/short on the back of news of the SEC's lawsuit. My basic intuition was twofold: the case seemed quite bunk (a feeling that has been reinforced since); and even if Goldman is found guilty, the approximately $14B hit to their market cap was a large overreaction. My expectation was that Goldman would surpass earnings expectations by a mile and they did: EPS of $5.59 vs expectations of $4.16 (beating by approx. 40%). The gross figures were revenues of $12.8B, $7.4B of which was from Fixed Income, Commodities and Currencies (FICC), and profits of $3.29B. Enormous quarterly numbers, but the stock refused to budge.
Clearly the trade I recommended was not much good (although had you bought at open Friday and sold at open Tuesday - the day of the earnings report - you would have netted a couple percent). People who seek to improve themselves look at their decisions, and aided with the benefit of hindsight they isolate where they went wrong in order to avoid such mistakes in the future. My mistake hereis quite clear. The overriding negative sentiment from the SEC case (no matter how bunk) made it impossible for this stock to bounce nicely on a very strong earnings report. The lesson? In the short term, perceptions (animal spirits) outweigh fundamentals. I feel very strongly that Goldman will continue to outperform and my ideas will be vindicated in the long run.
Showing posts with label Financial Earnings. Show all posts
Showing posts with label Financial Earnings. Show all posts
Thursday, April 22, 2010
Wednesday, April 14, 2010
JPMorgan Q1 2010 Earnings
So JPMorgan was the first of the big US banks to report Q1 2010 earnings today. The figures beat expectations of 64 cents per share by a dime and led to a significant stock market rally driven by the financial sector. CEO Jamie Dimon was also quite upbeat on the economy, venturing as far as to say that various economic indicators were indicative of a strong recovery. The firm even reversed $462M in provisions for credit losses, an indication that writedowns in the loan book will not be severe as earlier estimates. This is very bullish for the US economy. Trading continued to be the driver of performance, with fixed income trading revenue coming in at a record $5.46B and the investment bank as a whole contributing $2.47B to bank's total earnings of $3.33B.
The fact that JPMorgan was actually able to surpass Q4 earnings ($3.28B) on the back of another record for fixed income trading is very bullish Goldman Sachs. GS made $21.77 last year, riding enormous windfall profits in fixed income trading as their competitors scaled back operations. GS is relative cheap right now at 8.5 trailing earnings on expectations that they will not be able to provide the same sort of returns moving forward, as competition re-enters fixed income trading in a big way and chips away at GS' bread and butter. GS is known for managing earnings expectations and I remember making a mental note of an interview in January with COO David Cohn in which he said that he expects fixed income trading numbers to maintain or expand from levels seen in Q4. Unless JPMorgan has been stealing GS's market share (something I view as quite unlikely) JPMorgan's figures indicate that the largest book runners have been able to defy expectations and maintain market share despite the heightened competition in this market, thereby supporting Cohn's comments. On this basis, I am expecting GS to post a big number when they report. If they continue to bow to populist pressure and keep the compensation ratio low, it could be an enormous number. I won't be making a whole lot of calls on this blog, but I think GS is a good trade right now ($185). They could run to $200 if Greece doesn't ruin the party in financials right now.
Bank of America should also be boosted by trading profits at Merrill, but they have a much uglier loan book than JPMorgan and on that basis cannot recommend BAC stock.
One addendum. JPMorgan's figures included a $2.7B write off for expected charges resulting from lawsuits surrounding the WaMu takeover. I haven't heard a whole lot about said lawsuits, but will keep an eye out for more information.
The fact that JPMorgan was actually able to surpass Q4 earnings ($3.28B) on the back of another record for fixed income trading is very bullish Goldman Sachs. GS made $21.77 last year, riding enormous windfall profits in fixed income trading as their competitors scaled back operations. GS is relative cheap right now at 8.5 trailing earnings on expectations that they will not be able to provide the same sort of returns moving forward, as competition re-enters fixed income trading in a big way and chips away at GS' bread and butter. GS is known for managing earnings expectations and I remember making a mental note of an interview in January with COO David Cohn in which he said that he expects fixed income trading numbers to maintain or expand from levels seen in Q4. Unless JPMorgan has been stealing GS's market share (something I view as quite unlikely) JPMorgan's figures indicate that the largest book runners have been able to defy expectations and maintain market share despite the heightened competition in this market, thereby supporting Cohn's comments. On this basis, I am expecting GS to post a big number when they report. If they continue to bow to populist pressure and keep the compensation ratio low, it could be an enormous number. I won't be making a whole lot of calls on this blog, but I think GS is a good trade right now ($185). They could run to $200 if Greece doesn't ruin the party in financials right now.
Bank of America should also be boosted by trading profits at Merrill, but they have a much uglier loan book than JPMorgan and on that basis cannot recommend BAC stock.
One addendum. JPMorgan's figures included a $2.7B write off for expected charges resulting from lawsuits surrounding the WaMu takeover. I haven't heard a whole lot about said lawsuits, but will keep an eye out for more information.
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