At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Like the teens experiencing their first high-school crush, there's nothing so cute as bankers in love -- the latest instance of which was published in the "Commitments" section of yesterday's edition of Briefing.com. It's there we find megabanker Banc of America Securities plighting its eternal troth to Goldman Sachs (NYSE: GS), and upgrading the shares from "date" to "marry" ... er, "neutral" to "buy" that is.
But investors may wonder -- just how good a judge of character is this banker? Turning to the Fool's own version of Match.com for the answer, we see that while B of A has gone out on a few bad dates from time to time ...
Company
B of A Says:
CAPS Says:
B of A's Pick Lagging S&P by:
Legg Mason (NYSE: LM)
Outperform
****
39 points
Morgan Stanley (NYSE: MS)
Outperform
**
20 points
CME Group (NYSE: CME)
Outperform
****
7 points
... this banker is nonetheless often lucky in love:
Company
B of A Says:
CAPS Says:
B of A's Pick Beating S&P by:
Charles Schwab (Nasdaq: SCHW)
Outperform
****
31 points
E*Trade (Nasdaq: ETFC)
Underperform
****
30 points
JPMorgan Chase (NYSE: JPM)
Outperform
**
10 points
In fact, B of A beats the market on better than 55% of its stock picks (a performance that bests just shy of 95% of the investors tracked by CAPS). As a result, B of A ranks among the megabanking elite, and earns our coveted "Wall Street's Best" icon.
Bankers in love
But what is it about Goldman Sachs that attracts B of A like no other banker? Is it something in the way Goldman moves? Raw Sachs appeal? Nay, Fool, it was an even more basic banker attraction: Profit.
I like [bid/ask] and I cannot lie ...
According to B of A, the Great Banking Die-off of '08 has reduced competition among fixed-income brokers such as Goldman, with the result that "bid/ask spreads" are widening. Moreover, "a marked increase in global equity underwriting volume as firms raced to recapitalize while market conditions were favorable" in this year's second quarter increased the volume of deals on which Goldman reaps its profits. Higher revenues, therefore, means B of A sees Goldman Sachs earning as much as $16.30 this year -- 16% more than previously predicted.
Now I should point out -- bankers in love sometimes lose their heads, and it's just possible that this is what's happening with B of A. After all, consensus estimates of Goldman's profits this year fall closer to $13.20, so B of A is clambering way out on a limb when it tells us that Goldman will earn 23% more than the average of everyone's expectations.
Foolish takeaway
Still, if B of A is right in its prediction, then we could be looking at a real bargain here, Fools. Based on Goldman's closing price Thursday and B of A's estimate, this would mean the stock sells for less than nine times this year's profits. Plus, analysts expect Goldman to grow profits in excess of 11% per year over the next five years. Needless to say, it works out to an awfully nice PEG ratio.
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