Financial giant Goldman Sachs ( GS ) will report its first-quarter numbers before the market open April 17. The consensus calls for earnings of $5.67 per share, up from $5.15 during the same period last
GS was recently trading at $257.39, down $17.92 from its 12-month high and $47.77 above its 12-month low. Technical indicators for GS are bullish with an upward trend. The stock has recent support above $244.50 and recent resistance below $260.00. Of the 18 analysts who cover the stock, nine rate it a “strong buy”, and nine rate it a “hold”. GS gets a score of 76 from InvestorsObserver’s Stock Score Report.
The entire financial sector was hot in 2017, but big bank stocks have cooled off in 2018, and the sector has been relatively flat. The overall economic landscape remains bright for the sector, and the neutral trend has been more a result of a volatile overall market versus any growing weakness in the financial companies themselves. The biggest thing working in the favor of the financial sector at this time is higher interest rates. The Federal Reserve has begun lifting rates, and is expected to lift rates at least two more times during the year. Higher rates allow banks to earn more in interest income, which is the reason financial stocks were so strong in 2017. Goldman has reported better than expected sales and earnings the last three quarters, and the street expects another beat this quarter, with a whisper number of $6.03, well above the $5.67 consensus. GS is trading at $257.39, with an average price target of $275.50.
Stock Only Trade
If you’re looking to establish a long stock position in GS, consider buying the stock under $257.50. Sell if it falls below $232.00 or take profits if it gets to $296.00.
If you want a bullish hedged trade on the stock, consider a May 225/230 bull-put credit spread for a 30-cent credit. That’s a potential 6.4% return (64.7% annualized*) and the stock would have to fall 10.5% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider a May 290/295 bear-call credit spread for a $0.25 credit. That’s a potential 5.3% return (53.4% annualized*) and the stock would have to rise 12.8% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a May $260 covered call. Buy GS shares (typically 100 shares, scale as appropriate), while selling the May $260 call for a debit of $248.90 per share. The trade has a target assigned return of 4.5%, and a target annualized return of 46.5% (for comparison purposes only).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com