Saturday, July 24, 2010

Goldman Sachs (GS) charged by the SEC

Buy GS asap
Target:       $185+
Stop Loss:  $110
Expected timeframe:  6 months -- 2 years

On April 16, 2010, the SEC charged Goldman Sachs with defrauding investors in the sale of securities related to sub-prime mortgages.  This was really just something to save credibility after the miserable job they did of regulating banks before the sub-prime mortgage disaster.  At the time, GS was trading at over $184.  Over the next two months, GS dropped to $130. 

On June 14, 2010, I read an article titled, "Big Bank Lawsuits Won't Hit Bottom Line" and I'd like to quote the most important part:

"Experts are split on whether the SEC can offer a believable case in court. The suit is related to the investment firm's actions in a particular deal at the height of the subprime frenzy.  It's debatable whether Goldman's actions -- even if unsavory -- actually broke any laws, and the regulator has so far presented little evidence to that effect."

Goldman Sachs makes $14 billion per year in profits.  Not sales, but profits.  How big a fee could the SEC charge that would even make a dent in this enormous company?  Does it stand to reason and common sense that Goldman Sachs should drop over $50/share based on this allegation that holds little weight and will likely bring a relatively small fee?  This is an excellent example of investors over-reacting and driving the stock far below what the price should be. 

I bought Goldman Sachs on July 9, 2010, at just under $138 with the prediction that it will go to recent highs of $185/share within 2 years.  That's giving me plenty of time -- I actually think it will get there sooner but I'm not sure how much sooner. 

The stop loss is $110 -- if it goes anywhere near that something is seriously wrong and it's time to get out.  It has already gone up to $147 and not likely to even go back to previous lows of $130.  Buying down at these prices is getting bargain basement prices on an industry leader, the big dog on Wall Street. 

Goldman settled with the SEC on July 15, 2010, for $550 million, or about 4% of its annual profits.  It no longer has any reason to be down here at these prices.