Wall Street Reaction to Goldman Sachs Charges Looks Overblown: Barron's
04/19 07:17 AM
07:17 AM Eastern Daylight Time, 04/19/2010 (MidnightTrader) --
Goldman Sachs' (GS:...) reputation took a huge hit Friday when the Securities and Exchange Commission charged the firm with securities fraud in the underwriting of a $1 billion collateralized-debt obligation backed by subprime mortgages. But don't count Goldman out, says a feature in this week's Barron's. GS fell 12.8% Friday but shares are edging just higher in pre-market trading this morning.
The sharp drop in Goldman stock appears to be an overreaction. The one-day drop in the company's market value -- by $13 billion, to $87 billion -- handily exceeds estimates of the losses Goldman could face, Barron's says. It may take some time, however, for the cloud to lift over Goldman, which emphatically denied the SEC charges, saying they are "completely unfounded in law and fact." Patient buyers of Goldman stock probably will come out ahead, given the company's low valuation and the likelihood that even a defeat at the hands of the SEC probably will be financially tolerable, the article says.
Goldman now has one of the lowest price/earnings ratios of any large company in the Standard & Poor's 500 index -- even lower than those of cigarette makers like Altria (MO:...) and Reynolds American (RAI:...) . Goldman's valuation seems too low because, say what you will about the firm, it doesn't make a product that kills, the article says.
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