The first half of 2022 was a challenge for the stock market, as it was Standard & Poor’s 500 She had her worst start in 52 years. Conditions seem to have improved over the past couple of months, but there are still opportunities to buy big companies at good prices.
The capital markets industry is one area where you can find companies for sale with good long-term prospects. Companies in this industry have seen success in their earnings due to market volatility, and now you can buy stocks like Goldman Sachs (GS 0.25%) And the Morgan Stanley (Ms 1.11%) dirt cheap.
1. Goldman Sachs
Goldman Sachs provides investment banking services to its clients and helps them raise funds through the capital markets through initial public offerings (IPO) and debt issuance.
The investment bank was a big winner in 2021, generating record revenues thanks to the rapid pace of IPOs and mergers and acquisitions (M&A). According to data from set of factsLast year, 1,073 companies went public.
This year has not been favorable for the investment bank. The same FactSet data shows that only 92 companies have gone public this year, and Goldman’s investment banking unit saw revenue fall 38% in the first half of the year.
Companies were nervous about making their public debut, only to see their stock prices plummet. One of the main reasons for the market volatility was the sharp increases in interest rates by the Federal Reserve.
This year, the fed funds rate has gone from about 0.25% to 2.5% in just five months. This has the markets worried that the Federal Reserve will continue to raise interest rates dramatically. However, traders expect less sharp price increases in the second half of this year and into next year, which could help stabilize markets.
investment banks periodic business, which means they are trading at a lower price because investors do not expect the good times to last forever. At the end of last year, Goldman was trading at a price-to-earnings ratio of 6.5, and at some point this year, it was trading at its lowest valuation. in 11 years. Now Goldman is trading at a P/E of 7.8, but I’d argue it’s a better value after its business took a hit.
The stock market’s better performance in July and August led to investor optimism that we may have passed the juncture. Goldman Sachs has always been one of the best investment banks in the world, and owns A large number of backlog deals that have not yet been concludedThe investment bank could be in an excellent position to capitalize – making the stock a bargain at its current price.
2. Morgan Stanley
Morgan Stanley also provides investment banking, but the company has worked hard to diversify its revenue away from investment banking.
In 2009, one year before James Gorman became CEO, 66% of Morgan Stanley’s revenue came from investment banking and trading. Today, 50% of the company’s revenue comes from these sources. The rest comes from wealth management and investment management.
Morgan Stanley’s most significant move in recent years has been the acquisition of trading platform E*TRADE and asset manager Eaton Vance for a total of $20 billion. These acquisitions make Morgan Stanley’s earnings more resilient, helping it avoid some of the cyclical nature of investment banks.
Slow IPO activity slashed Morgan Stanley’s earnings, with investment banking revenue in the first six months down 46% from a year ago. However, the The company’s other revenue sources have grownIncluding net interest income and asset management, its total revenue was down just 8%.
Morgan Stanley is trading with a P/E ratio of 12.1. While this is in line with where the stock has traded historically, I would argue that the stock is cheap due to management’s moves to make the business less cyclical.
CEO James Gorman argue That Morgan Stanley deserves a P/E ratio closer to that Charles Schwab, which has a P/E ratio of 24.3. Given Morgan Stanley’s moves to grow his investment and wealth management business, this could be an excellent stock to buy at a cheap valuation today.
Charles Schwab is an advertising partner for The Ascent, the Motley Fool Company. Courtney Carlsen He has positions at Morgan Stanley. Motley Fool has and recommends positions at Goldman Sachs. Motley Fool recommends Charles Schwab. Motley Fool has a profile Disclosure Policy.