GS: Better Buy: Goldman Sachs vs. Morgan Stanley

Goldman Sachs (GS) and Morgan Stanley (MS) are two leading investment banks. Both stocks have climbed upward to start the new year following stellar performances in the final two financial quarters of 2020.

There is an argument to be made that both GS and MS are worth investing in. However, an unpredictable economy could spell trouble for one or both of these companies in the year ahead.

Without further ado, let’s take a look at whether GS or MS is the better play.

GS and MS by the Numbers

GS has moved about $50 above its pre-COVID trading price of $245. The stock has fantastic numbers across the past six months and the prior three weeks. GS is a mere $15 away from its 52-week high of $309.41, yet it has a relatively low forward P/E ratio of 11.38. In short, this means it is likely that GS is underpriced at its current trading level.

Analysts paint a rosy picture for GS moving forward, setting an average price target of $312 for the stock, indicating a potential upside of 6%. Of the eleven analysts who cover the stock, eight recommend buying it, two advise holding, and one advises selling.

MS has steadily climbed upward since dipping down to $27.81 in late March. The stock stagnated between the summer and fall, only to bounce right back to life once November rolled around. MS is around $2 away from its 52-week high of $77.17, yet it has a reasonable forward P/E ratio of 14.14.

Analysts view MS as underpriced, setting an average price target of $76.33 for the stock, which is 2% higher than its current price.

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GS Vs. MS in the POWR Ratings

GS is nearly perfect in the context of the POWR Ratings. GS has “A” grades in the Peer Grade, Trade Grade, Industry Rank, and Buy & Hold Grade components. The stock is ranked third out of 25 stocks in the Investment Brokerage industry.

If you are impressed by GS’s POWR Ratings, you will be blown away by MS’s POWR Ratings. MS has “A” grades in the Peer Grade, Trade Grade, Industry Rank, and Buy & Hold Grade components. MS is also ranked first in the same industry.

The Case for MS

MS doesn’t receive an abundance of coverage from the mainstream media yet has made some serious “power moves” in the tumultuous year that was 2020. MS acquired E*TRADE in 2020, a move that made the company the largest wealth manager in the nation with aggregate managed assets over $3.3 trillion.

The company also added investment manager Eaton Vance (EV), which brings $500 billion of assets into the fold. Moody’s, a respected rating agency, recently upgraded MS’s credit rating to A2. This is a bullish indicator for MS as it indicates the company is considered low-risk.

The Case for GS

GS has also succeeded in diversifying its sources of revenue outside of the conventional investment banking stream. The company’s largest revenue generator is its equity trading and fixed-income segment that is growing nearly 30% on a year-over-year basis.

GS’s asset management segment enjoyed a revenue spike of 70% in the prior quarter. GS’s net income is up more than 90% on a year-over-year basis. The company’s revenue is up more than 30% compared to the prior year. If GS succeeds in acquiring a commercial bank, its revenue streams will be diversified even more and enticing for prospective investors.

The Verdict

Choosing between MS and GS is similar to attempting to determine whether pizza tastes better than calzones. Investors cannot go wrong with either of these stocks. When in doubt, let the POWR Ratings break the tie. MS is the top-ranked stock in the Investment Brokerage segment and has “A” grades in each POWR Ratings component, making it the winner in the battle of financial titans.

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GS shares fell $2.35 (-0.81%) in premarket trading Friday. Year-to-date, GS has gained 8.74%, versus a 2.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...