Financial Survivor Series: Watching Goldman Sachs

Lord knows I'm a fan of the likely survivors of the financial-market meltdown. I own Raymond James Financial and thinkorswim (SWIM), market-share takers with solid balance sheets that will survive and thrive longer term.

I'm willing to bet many disgruntled Merrill Lynch (MER) brokers will end up at Raymond James, and thinkorswim will keep on scooping up options traders in search of reasonable commissions and superior customer service.

I'm overweight financials, but Goldman Sachs is a name I'd like to eventually add to my stable of financial survivors. The near-term business environment for Goldman is pretty awful by any measure, but Bear Stearns (BSC) and Lehman Brothers LEH) have gone bye-bye while Citigroup has seen its reputation sullied. Merrill Lynch has even sought refuge with Bank of America, whose CEO Ken Lewis said last October that “I’ve had all the fun I can stand in investment banking right now.'

Along with boutique firms like Lazard (LAZ) and Greenhill (GHL), Goldman Sachs is clearly going to take market share in just about every institutional financial services category imaginable, ranging from M&A advisory to trading to prime brokerage - businesses that stink now but will eventually come back.

Taking all that into context, Goldman is trading down about $4 today on this news I caught off Briefing.com:

Goldman Sachs tgt cut to $80 at Ladenburg Thalmann; firm also cuts 2008-2010 ests, maintains Sell rating (91.37 -1.17) -Update : Ladenburg Thalmann cuts their tgt on GS to $80 from $140. The firm also cuts their estimates to the following: 1) the 2008 estimate is being reduced to $10.11 (consensus $12.03) from $12.57; 2) the 2009 estimate is being cut to $6.05 (consensus $13.01) from $15.30; and 3) the 2010 estimate is being reduced to $9.78 from $17.85. The firm says that the short-term outlook for the company is poor. The intermediate term outlook is challenging. The long-term outlook is good. They say the problem in the short run is valuation. Firm says the co has as a policy the purchase of distressed assets. In the past this has proven to be a very successful strategy generating an estimated $10 billion in revenues. Today, they say, this strategy is falling under the new mark to market accounting rules. Core businesses such as credit derivatives, private equity, prime brokerage, and international are suffering, says the firm. They say the intermediate term will benefit from the fact that competition is drying up. Longer term, they say many would argue that this is still the best place to do equity underwriting business. The firm says that one cannot ignore the possibility that GS might link up with a large universal bank. This, they say, would be a positive.

One must be extremely careful when buying stocks with declining earnings expectations, but Goldman Sachs is exactly the type of company I want to bet on for the next five years.

In fact, if I didn't already own RJF and SWIM, I'd be buying right now on this weakness.

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