Monday, March 21, 2011

Goldman Sachs is Cheap - Buffett

I recently saw that Buffett told CNBC that he will not be exercising his Goldman Sachs warrants even though they are worth 2 billion today.

"I think the odds are that it goes higher," Buffett, the chairman and CEO of Berkshire Hathaway, said. "Over time most stocks will get more valuable, and I have no reason to think Goldman Sachs is an exception to that."

I think we can safely interpret the statement that "the odds are that it goes higher" to mean it is cheap and has a high likelihood to be worth more in the future. Given that these options are set to expire in 2013, Buffett believes that will happen between somehow between now and then.

I couldn't agree more. Goldman currently sells for P/B of 1.1 and is capable of earning very high returns on equity even with the new regulations. It is a fairly safe bet that as the economy improves, Goldman will lead the way in returns at investment banks if history is our guide.

Needless to say, I was long GS before this news and plan on being long GS for quite some time.

Best Regards,

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