(By Dave Goodboy) Goldman Sachs (NYSE: GS) --
Just that name conjures up fear in the mind of its competitors. One of the world's largest investment banks, it has the respect of just about everyone in the financial business. The company's list of former employees and directors reads like an international "who's who" of government and finance. Robert Rubin, Henry Paulson (former Secretary of the Treasury under President Bill Clinton and George Bush), Mario Monti (the prime minister of Italy), Mario Draghi (governor of the European Central Bank
) and Mark Carney (governor of the Bank of Canada) are all former Goldman Sachs employees.
The company has been on the New York Stock Exchange since 1896 and pioneered both the use of commercial paper for businesses and the initial public offering (IPO)market. In other words, these guys are entrenched and clearly know their business inside and out. Although Goldman Sachs is huge, it's not bigger than the market, therefore is dependent on the economic environment like everyone else. The company survived, but suffered, through the Great Depression and has had its ups and downs since. Its most recent down came this year: during the second quarter of 2012, net income fell to $962 million from $2.1 billion. Profit also plunged 11%.
Goldman cites the deteriorating European economies and a drop in its investment banking activities as the root cause of the decline. The pullback was expected -- Goldman Sachs' losses were not as bad as analysts' expectations for the quarter. The firm actually traded higher on the release date of the second-quarter numbers showing its resilience and strength. Despite various downturns, these guys definitely know what they are doing when it comes to investing.
So, is now a good time to invest in the same stocks that Goldman Sachs owns? With this question in mind, let's take a closer look at two of Goldman Sachs' prime holdings.
Apple (Nasdaq: AAPL)
This popular high-tech company has been on the move during the past six months, trading higher by 42.9%. The growth is driven by the company's game-changing products, the iPhone and the iPad. Despite its stellar six-month performance, heavy technical resistance exists at $620 per share.
Although shares are trading above the 50-day and 200-day simple-moving averages, I would not buy shares in the company right now. My strategy would be use a channel-trading method to find the best timing for an entry. A break above $620 per share or a pullback to the 50-day simple-moving average of around $580 would both trigger my entry. Patience may pay with this one.
Banco Santander Brasil (NYSE: BSBR)
This international bank's stock has fallen by 20.24% during the past six months. The global economic slowdown, and in particular Brazil's slump, has weighed on this bank. However, the falling value of the Brazilian real has contributed to the stock price slide as the price is denominated in greenbacks. The Brazilian government has recently lowered interest rates from 12.5% to 8.5%, a move that will help industry and exporters even while it does nothing to remove the pressure from the real.
There are clear signals that we've reached the bottom for the global economy. I think investors have become oversaturated with bad news, taking everything but extreme events in stride. On the other hand, any smidgeon of good news is embraced and aggressively bought.This environment makes it a good time to buy this stock. The price has bounced off its lows, creating a solid buying opportunity in the $7-per-share area. The stock is also 38% off its 52-week high, but 4% above its 52-week low with solid upside potential. My stops would be at $6.50.
Risks to Consider: It's important to keep in mind that just because Goldman Sachs has a stake does not mean your trade will be profitable. Be certain to position size properly and always use stops based on your risk tolerance and account size. Things can change very quickly in the economy and stock market, so never get overly committed to any one position.
Action to Take --> I like both these companies and, with the proper entry, they are both solid buys. Staying flat in the Apple channel as described makes sense right now. Buying Banco Santander Brasil around $7 per share is a solid strategy with stops at $6.50.
-- Dave Goodboy
Dave Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.
This article originally appeared on StreetAuthority
Author: Dave Goodboy