Warren Buffett Should Consider Goldman Sachs... Again

Meanwhile, Goldman Sachs is one of just a few large cap banks that's been able to predictably lower its share count through stock buybacks, a key component of some of Buffett's largest holdings such as a stake in IBM(IBM) .

In the fourth quarter, Goldman bought back $1.53 billion in shares, exceeding an estimate of $1.2 billion, according to forecasts from Morgan Stanley banking analyst Betsy Graseck. For 2012, the bank bought back nearly $5 billion in stock, or a total of 42 million shares.

Given top line revenue gains across Goldman's businesses in 2012 and share count reductions, the investment bank is on a trajectory to grow its earnings per share, even if its balance sheet shrinks to reflect post-crisis regulations.

In contrast to Buffett's top bank holding Wells Fargo, which is facing uncertainty on key earnings streams, Goldman Sachs stands poised to benefit in 2013 from the Federal Reserve's low interest rates.

While some including Morningstar analyst Michael Wong expect that in 2013 Goldman's strong debt underwriting and trading revenue may tail off, the prospect of an increase in merger and acquisition activity as corporations attempt to take advantage of low interest rates may play to the investment bank's favor.

In fourth quarter earnings, Goldman's individual investment banking, equities trading and fixed income currency and commodity trading units all beat estimates.

Full year investment banking revenue was nearly $5 billion, a 13% gain from 2011 levels, while Goldman's Institutional Client Services revenue was $18.12 billion for the year, a 5% increase. Those units and Goldman's equity trading business gained between 36% and 64% in the fourth quarter, when compared with year-ago levels.

Prior to earnings, Bernstein Research analyst Brad Hintz forecast $2.3 billion in net institutional equities revenue, $1.7 billion in net fixed income currency and commodity trading revenue and $1.2 billion in net investment banking revenue, in line with Goldman's previous guidance.

Return on equity, the percentage Goldman earns by reinvesting its retained earnings, came in at 10.7 %, beating a full year estimate of just over 9%. For the fourth quarter ROE was 16.5%, beating an estimate of 10.3%.