Buying Opportunity in Brokerage Stocks?
09-23-99 3:50 PM by Alyssa Sibley | As recent quarterly profits
confirm, brokerage companies are experiencing explosive growth.
However, the stocks remain under pressure due to concerns over
higher interest rates.
Goldman Sachs GS, Morgan Stanley Dean Witter MWD, and
Lehman Brothers LEH are all approximately 20% or so off their highs
reached back in April of this year. While Morgan Stanley and Lehman
Brothers are outperforming their peers and the market on a year to
date basis, Goldman Sachs continues to be the laggard of the group.
Third-quarter earnings, however, attest to the ability of brokerage
firms to compete in an increasingly uncertain financial-market
environment.
In its first full quarter as a public company, Goldman Sachs reported
third quarter earnings of $1.31 per share, well ahead of the consensus
estimate of $1.09. Profits rocketed 94% over third quarter 1998,
which was universally depressed due to last summer's global financial
markets meltdown. Management cited Goldman's involvement in
seven out of the ten largest international mergers in the fiscal third
quarter as well as its leading underwriting role in the recent spate of
initial public offerings.
Morgan Stanley Dean Witter reported third-quarter earnings of $1.65
versus the consensus estimate of $1.63. Profits increased 55% over
third quarter 1998, facilitated by a resurgence in investment-banking
revenues and strong results from its European operation. Morgan
Stanley continues to benefit from its diverse business mix ranging from
credit cards to investment banking.
Lehman Brothers reported third-quarter earnings of $2.20 versus the
consensus estimate of $1.99. Profits surged 92% over third quarter
1998. The company, like its peers, was aided by the comeback in
global markets. Management attributed the strength to continued
expansion of high-margin business segments as well as an upturn in its
international operations.
These early-bird earnings announcements are typically a good
indicator for the outlook of the remaining brokerage houses.
However, financial markets look more and more uncertain going into
the fourth quarter as interest-rate fears loom persistently on the
horizon. For longer-term investors, now may be a good time to invest,
as the stocks are significantly off their highs. Then again, in the near
term, don't be surprised to see the stocks continue to trade in a
volatile pattern until interest-rate fears ease.
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Alyssa Sibley is an editorial analyst with Morningstar. She can be
reached at alyssa.sibley@morningstar.com |
