Two Investment Bank Stocks to Buy in April

Over the past few years, initial public offerings (IPOs) have plummeted due to high interest rates, geopolitical uncertainty, recessionary concerns, and market volatility, creating difficulties for investment banks that rely on these markets.

However, things are starting to look up. More and more companies are exploring initial public offerings (IPOs), theRedditReddit's IPO and other companies in the pipeline show that the market's risk appetite for IPOs is returning. Here are two investment banks you can buy today to capitalize on the changing trend.

1. Goldman Sachs

A little over two years ago, there was an explosion in demand for new public companies. Goldman Sachs (NYSE: GS)The company's profits are at an all-time high. According to consulting firm PricewaterhouseCoopers (PwC), 951 companies went public through IPOs in 2021, including both traditional offerings and offerings through special purpose acquisition companies (SPACs).

However, challenging market conditions made it less favorable for the company to go public.2022, the Federal Reserve began aggressively raising the benchmark interest rate. The fed funds rate rose from near zero to 5% in just over a year, causing market turmoil.Standard & Poor's 500The index saw its first bear market since the pandemic-induced sell-off.2023 Corporations remained cautious about going public; only 175 companies made initial public offerings in two years.

During this period, Goldman Sachs' investment banking revenues fell by 56%.At the same time, Goldman Sachs began to consolidate its businesses, including its struggling consumer banking business.

However, now may be the perfect time to snap up investment bank stock. According to Renaissance Capital, the first quarter saw "further green shoots grow in the initial public offering market," with 30 companies making initial public offerings and raising $7.8 billion. While this figure is similar to last year, the total amount of capital raised more than tripled as a result of more major IPOs.

Currently, Goldman Sachs trades at a P/E ratio of 18 times, which is higher than its 10-year average. However, it is important to remember that the price/earnings ratio (P/E) is a trailing edge indicator, which can be skewed for a cyclical business like investment banking. Goldman Sachs' forward P/E of 12.3x is cheap when considering this year's expected growth, making it a good stock to invest in if you believe an investment banking revival is on the horizon.

2. Morgan Stanley

Morgan Stanley (financial services company) (NYSE: MS)It is also very dependent on its investment banking business, and in two years the company's revenues from these businesses have declined by 55%.

Thanks to the strength of its wealth and asset management business, the company has responded well to market challenges, which has helped smooth out its earnings volatility. However, the company's share price is still at the same level as it was two years ago, and could break through if the investment banking business makes a strong comeback this year.

In addition to IPOs, M&As are another important source of revenue for investment bankers. M&A volume has declined in recent years, but not as much as IPOs. According to PricewaterhouseCoopers (PwC), M&A volume fell 25% last year as rising interest rates continued to put pressure on financing.

There are signs that the buyout is being revitalized. Two major deals were announced last year, includingEverson MobilProposed acquisition for US$59.5 billionpioneerCompany, andSnowdragonProposed acquisition for US$53 billionHess (name)Company. This year's deals includeHewlett Packard Enterprise($14 billion) proposed acquisition ofJuniper Networks ), andBlackRock) intends to acquire Global Infrastructure Partners for $12.5 billion.

According to Dealogic, global buyout volume grew by 30% to $755 billion in the first quarter. Analysts expect Morgan Stanley to post a 20% increase in earnings per share over last year, and at 14.7 times this year's expected earnings, and with its name, Morgan Stanley is another solid investment banking stock to buy as the economy improves.

Two great stocks to buy today.

Morgan Stanley and Goldman Sachs have had a tough couple of years. Both stocks have fallen 33% over the past few years and are now back to (or slightly above) their pre-interest-rate-hike prices.

Both companies will release their earnings reports in mid-April, when investors will learn how they performed in the first quarter. Given how investors view initial public offerings (IPOs) and buyouts in the first quarter, now may be a great time to scoop up shares ahead of these announcements.

Should you invest $1,000 in Goldman Sachs right now?

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Courtney Carlsen owns shares of Chevron, resonmobil and Morgan Stanley. the Motley Fool recommends Chevron and Goldman Sachs. the Motley Fool recommends Pioneer Natural Resources. the Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

Two Investment Banking Stocks to Buy in April was originally published by The Motley Fool.