Options Trade – Goldman Sachs Group, Inc. (GS) Calls 
Monday, April 01, 2013

A Bullish Chart Looms For Goldman Sachs!

**OPTION TRADE: Buy the GS Oct 2013 165.000 call (GS131019C00165000) at or under $3.50, good for the day. Place a protective stop limit at $1.60 and a pre-determined sell at $6.50.

by Ian Harvey

April 01, 2013

Introduction

Goldman Sachs (NYSE: GS) has been in a textbook uptrend.

The stock has been climbing ever higher since late-summer 2012, and it is anticipated that the trend will continue after consolidating.

The stock is currently consolidating because GS was one of the unlucky four financial institutions that didn’t have its capital plan unconditionally approved by the Federal Reserve as part of the latest Comprehensive Capital Analysis and Review (CCAR). Both GS and JPMorgan Chase (NYSE: JPM) were asked to resubmit their plans by the end of Q3 “to address weakness in their capital planning process.” Expectation of this resubmission is to be only a small speed bump for GS this year.

About Goldman Sachs

The Goldman Sachs Group, Inc. (Goldman Sachs) is a bank holding and a financial holding company. The Company is engaged in investment banking, securities and investment management firm that provides a range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals.

The Company operates in four segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management.

In April 2012, Ariel Holdings Ltd sold its Ariel Reinsurance’s Bermuda-based insurance and reinsurance operations to the Company.

In May 2012, the Company acquired Dwight Asset Management from Old Mutual Asset Management.

In July 2012, the Company secured three properties in Tokyo.

GS Undervalued

The shares of GS are undervalued:-

1. Given the low interest rate environment and one of the best starts to M&A activity in years, Goldman is ideally positioned to grow its fee base as long as this M&A wave continues.

2. The company has crushed earnings estimates over the last five quarters, and consensus earnings estimates have risen significantly for FY2013 and FY2014 over the past three months.

3. Goldman Sachs is selling right at book value and also yields 1.4%.

Comparison to JPM and MS

The chart below compares fundamentals for Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley (NYSE: MS). These three companies differ in size. Goldman Sachs has a market cap of $70.12 billion, JPMorgan has a market cap of $184.28 billion, and Morgan Stanley has a market cap of $42.95 billion.

Goldman Sachs shows good valuation, a strong profit margin, solid cash flow, and a decent yield.

Revenue and Earnings

Revenue and earnings have been inconsistent on an annual basis, but big profits continue to roll in.

When we look at the last quarter on a year-over-year basis, we see considerable improvements in revenue and earnings.

The Chart

At $147.15, Goldman Sachs is trading below its 50-day SMA, and above its 100-day SMA and 200-day SMA.

Looking at the current consolidation range on GS, there is a pennant — a bullish continuation pattern — starting to take shape. The stock has an up-trending support level starting from the support bounce in late-January and continuing through the support bounce in late-February and a down-trending resistance level starting from the recent high in mid-February and the subsequent lower highs reached in March. Look for the stock to bounce up off of support at $150 to eventually break up through the down-trending resistance level that is forming the top of the pennant.

Analysts Opinions

On Thursday, March 28, Guggenheim initiated a Buy rating and $175 price target at on Goldman Sachs.

Meanwhile, Goldman Sachs Group continues to be a Buy at TheStreet Ratings with a ratings score of B. Goldman Sachs’ strengths have the ability to be seen in multiple areas, such as its revenue growth, solid stock price performance, attractive valuation levels, expanding profit margins, and compelling growth in net income. TheStreet believes that the strengths outweigh the fact that the company has weak operating cash flow.

Analyst Firms Making Recommendations

ARGUS RESEARCH ATLANTIC EQUITI
B OF A M L BARCLAYS CAPITA
BUCKINGHAM RES CREDIT AGRICOLE
DEUTSCHE BK SEC EVERCORE PARTNE
FBR CAP MARKETS J.P. MORGAN
JMP SECURITIES MORGAN STANLEY
OPPENHEIMER HLD SANDLER O'NEILL
SANFORD BERNSTE SUNTRUST ROBINS
SUSQUEHANNA UBS
WELLS FARGO SEC

Conclusion

Investors remain optimistic on Goldman Sachs because of growth, and return to historic valuations. The stock should continue to outperform in the financial space going further into 2013.

Goldman Sachs has proven that it can overcome any type of economic environment or direction challenge. That fact alone makes Goldman Sachs an OUTPERFORM.

Therefore, based on the facts above the following options trade is recommended…..


**OPTION TRADE: Buy the GS Oct 2013 165.000 call (GS131019C00165000) at or under $3.50, good for the day. Place a protective stop limit at $1.60 and a pre-determined sell at $6.50.



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Options traders win because they are successful.



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