While there has been some considerable discussion recently about the return of Glass-Steagall, which separated commercial banking from investment banking, it hasn’t happened yet, and the big Wall Street firms that immersed themselves in traditional banking are still ahead of the game when it comes to generating revenues. With the stock market continuing higher, and rates staying low, the ability to generate revenues from both silos remains important.
A new Deutsche Bank research report makes the case that while loan growth has slowed, mostly due to very stringent underwriting standards, many of the top companies have revalued since the election, making some pricier than others. We screened the Deutsche Bank research universe and found that three of Wall Street’s biggest white-glove firms remain Buy rated and still make sense for growth investors going forward.
This continues to be the gold standard of Wall Street banks and trades at a reasonable 13 times estimated 2017 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.
In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1.5 trillion of announced mergers and acquisitions transactions last year, the highest level the bank has ever recorded. It also has maintained a leading market share over the past 25 years. It maintained a market position when merger and acquisition activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line is, regardless of where market strength is in any given year, Goldman Sachs is up to the task.
The company reported first-quarter results that missed on the top and bottom lines, a rare miss for a firm that typically outperforms. The sell-off that came after results were reported in April is giving investors a solid entry point for the stock, which is poised to finish 2017 in much better shape.
Goldman Sachs shareholders are paid a 1.35% dividend. The Deutsche Bank price objective is $255, and the Wall Street consensus target price is $244.08. The shares closed Thursday at $222.47.
This stock trades at a reasonable 13 times estimated 2017 forward earnings and could respond good in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms, and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today formed through the merger of retail bank Chase Manhattan and investment bank JPMorgan.
The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services. The company reported solid first-quarter results and continues to take advantage of revenue opportunities in new markets and with the credit card business.
JPMorgan investors receive a 2.34% dividend. The Deutsche Bank price target is set at $90, and the consensus target is $94.10. The shares closed most recently at $85.35.
Morgan Stanley (NYSE: MS) recently posted outstanding quarterly results, and it may be among the best buys in the banking and investment arena. It is another one of the white glove Wall Street firms that continues to show tremendous growth, and it is running neck and neck with Goldman Sachs as the bank of choice for high-profile initial public offerings.
Trading at a price-to-earnings multiple of 12.4 times estimated 2017 earnings, that seems extremely reasonable given the 2017 expectations for earnings growth of more than 15%. The company also has 560 billion in cash equivalents on its balance sheet versus $288 billion in total debt.
Morgan Stanley investors are paid a 1.88% dividend. Deutsche Bank has a $47 price target, and the consensus price objective is $48.42. Shares closed Thursday’s trading at $42.63.
These three companies have extraordinary management teams and a huge footprint in banking and investment banking and in the capital markets. All are good holdings for long-term growth accounts looking to own the premiere companies in the industry.