Why Goldman Sachs stock is set to move much higher
Repatriation of money hoarded by American companies overseas will cause a wave of acquisitions. Goldman Sachs, as no other firm, is set to benefit from this.
One of the main tasks on the President Trump’s agenda is a tax reform. If it will go through (which in my opinion, it will) it will cause, among other things, a massive repatriation of capital hoarded by American corporations in their overseas subsidiaries. The amount of money I am talking about is huge. Some estimates put it at $2.5 trillion!
What will American companies do with all this money? Invest it into construction of new factories, distribute as dividends, buy their own stock? Probably all of the above. In addition, in my opinion there will one other major effect: a splurge on acquisition of other companies, as the money will need to be put to work quickly (research and development, planning and construction of new factories takes years and often does not yield an intended outcome – it is much easier and less risky to buy an established business, even if it costs a fortune).
American investment banks are set to benefit handsomely from this bonanza. And the Goldman Sachs Group, Inc. (GS), as the best among them, will benefit the most. Shares of the firm have had a nice run since the last presidential election, then slipped somewhat on the disappointing first months of the new president in office. The low interest rate environment and low stock market volatility that some claim as another negative factor contributed to this. However, in my opinion, this is just a temporary pullback. The amount of money the firm is set to earn after the inaction of the new tax code is enormous, as its stock price increase potential.