Investors who have owned stocks in 2021 have generally experienced some big gains. In fact, the SPDR S&P 500 ETF Trust (NYSE: SPY) total return over the last 12 months is 23.3%. But there is no question some big-name stocks performed better than others along the way.
Goldman’s Bumpy Ride: One company that was a lackluster investment in the past year was U.S. investment bank Goldman Sachs Group Inc (NYSE: GS).
Goldman Sachs slightly outperformed in 2021 in an environment of falling interest rates, elevated financial market trading activity and impressive loan growth.
Goldman Sachs reported consistently impressive earnings and revenue growth throughout 2021, but an environment of rising wages and climbing interest rates may have Goldman in an unfavorable position to continue that growth in 2022 relative to other banks.
On Tuesday, Goldman reported fourth-quarter earnings that fell short of analyst expectations and said operating expenses grew 23% in the quarter. As a result, profits were down 13% from a year ago. Goldman also reported $182 million in reserves for litigation and regulatory costs, up from $24 million a year ago.
Investment banking revenue was up 45% in Q3 to $3.8 billion, and Goldman generated record profits and revenue in 2021. Unfortunately, Goldman’s investment banking business model leaves it relatively underexposed to rising interest rates, which analysts expect will boost net interest margins for Goldman’s megabank peers that have large lending operations in 2022.
At the same time, the surge in financial market trading activity, SPAC deals, mergers and IPOs since the beginning of the pandemic is expected to cool off further in 2022, creating additional potential headwinds for Goldman.
At the beginning of 2020, Goldman Sachs shares were trading at $231, and by the start of March the stock was down around $201 on news of the coronavirus spreading in China. Then later that month, when the market crashed during the U.S. COVID-19 outbreak, Goldman Sachs shares dropped as low as $130.85.
When the market bounced off pandemic lows, Goldman Sachs began to rebound as well. The stock recovered to as high as $222.98 in June 2020 before its recovery rally stalled. Over the next five months, Goldman trades mostly sideways in a range of between around $185 and $220 before breaking out to finish 2020 above $250.
Goldman Sachs In 2022, Beyond: Goldman hit $300 in January 2021, $400 in August 2021 and new all-time highs of $426.16 in November 2021. Unfortunately, its fourth-quarter earnings miss sent shares tumbling 7.7%. Today, Goldman Sachs shares are trading back down at $351.48.
Goldman Sachs investors who bought one year ago and held on with hopes for a big 2021 performance have generated a disappointing return on their investment at this point. In fact, $1,000 in Goldman Sachs stock bought on Jan. 18, 2021, would be worth about $1,185 today, assuming reinvested dividends.
Looking Ahead: Analysts are expecting Goldman Sachs to bounce back in the next 12 months. The average price target among the 24 analysts covering the stock is $462.50, suggesting 31.6% upside from current levels.
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