Recently the Dow Jones Industrial Average (DJIA) removed three stocks from its membership roster and added three new stocks in their place. The stocks that were kicked out—Alcoa (AA), Bank of America (BAC), and Hewlett-Packard (HP); the stocks added—Visa (V), Nike (NKE), Goldman Sachs (GS).
I wrote about this change and why, in my opinion, it took so long for Visa to be added. I also analyzed the worthiness of Visa as a Dow member. Ultimately, what I determined is that Visa is a great stock that IS worthy of the Dow, and its membership has been a long time in the making.
But what about Goldman Sachs (GS)? Why was it finally chosen as a DJIA member and is it actually worthy?
Goldman Sachs has been around a long time—since 1869—which leads back to my question: why now, Dow Jones?
Headquartered in New York, NY with offices in major financial cities across the world, GS is a global investment banking and management, and securities firm that provides a varied range of financial services to the likes of corporations, financial institutions and governments, as well as high-net-worth individuals.
GS falls into the financial sector of the market. So far in 2013, the financial sector has had pretty mediocre performance. In fact currently, I give the financial sector a grade of B-.
GS is a $75 billion company. It is a Large-Cap stock. Large-Cap stocks also have had pretty mediocre performance in 2013. Currently, the Large-Cap stock asset class gets a grade of B.
GS is a stock geared towards conservative risk profile investors.
Before I get started on my analysis of GS, let me share my method of madness in how I rank stocks. I separate them from one another by taking into account the following criteria:
1. Performance-short-term, intermediate term, and long-term where possible. I compare the performance of the stock with its peers and against the other 3,565 stocks that I monitor.
2.Valuation-While I like performance, I have seen way too many momentum darlings come crashing back down to earth due to astronomical valuations. We have had learned huge valuation lessons from incidents like the crash of the NASDAQ in 2000-2001, the crash of the housing market in 2006, and many other such bubbles. VALUATION DOES MATTER!