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Archives for June 2010
Today on CNBC’s Strategy Session, Patty Edwards recommended a longtime favorite stock of BuylikeBuffett. Chicago Bridge & Iron is an often overlooked stock in the construction and engineering space. I have been buying shares of Chicago Bridge & Iron (CBI) over the last year. Chicago Bridge & Iron is a nice mid-cap play with a decent balance sheet and solid growth potential. This is a long term holding which should maximum appreciation over the next 5 years. Shares trade at just 9 times next year’s earnings which seem cheap based on the projected EPS growth rate of 11.5%. Investors looking for a nice infrastructure play may want to take a look at CB&I.
While Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) dominate the headlines, there is one large bank that just slowly continues to grow away from the limelight. That bank is US Bancorp (USB). US Bank took TARP funds just like the other big banks but unlike the other big banks has been able to escape the public backlash.
US Bank has been a longtime Buffet holding because of the company’s great management team and conservative approach to lending. The company’s management is a big reason why the banking giant’s loan portfolio has been outperforming that of its banking peers. It’s non performing loans percentage is much lower than Citigroup and Bank of America. US Bank is the 5th largest bank in the US based on asset size and US Bank has been quietly increasing its size by buying up failed banks over the past year. There have been continuous rumors that US Bancorp may acquire a larger regional bank to expand its operations.
US Bancorp has reported nearly two consecutive years of profitability. Last quarter’s earnings were very solid. USB had earnings of $648 million dollars and an EPS of 34 cents per share. Profitability increased 55% and total deposits increased almost 14%. The encouraging news was that consumer loan delinquency was decelerating even as the bank was increasing its reserves for loan losses. Investors should pay attention to the July 21st earnings release to see how US Bancorp’s sizeable commercial loan portfolio is holding up.
US Bank pays out a much higher dividend than its banking competitors. Shares of US Bancorp are not expensive but are not particularly cheap either at $23. Shares trade at 11 times forward earnings and 1.8 times book value.
ESPN has a story on the bankruptcy of Mark Brunell. Brunell invested in businesses in which he did not have more than enough cash to cover the liabilities. Mark Brunell was one of the best QB’s in the NFL in the 90’s and I am certain that he is a good man. Brunell invested in a number of different real estate ventures that have led him to the doors of bankruptcy. The only way that he can escape his creditors is through bankruptcy. Don’t blame Brunell though. This can happen to just about anyone when you allow yourself to become overextended.
It’s estimated that Brunell made over $50 million dollars during his playing career. It’s believed that Brunell now has less than the $3 million dollars needed to cover the loan repayment. While we shouldn’t mire in the misery of others, you can learn an important lesson from the Mark Brunell case. You have to live within your means. Even athletes have to create a budget. They make a great sum of money for a limited time and need to adjust their spending so that they can maintain their standard of living after the glitz, glamour, and big contracts are long gone.
Here are 10 posts that I found fascinating reads. Enjoy!
Len Penzo discusses the importance of Visualizing Your Financial Future.
Financial Samurai has an interesting post on Overcoming The Wall.
Moneymonk illustrates how Saving So You Can Enjoy Retirement Is BS.
Free Money Finances details the 10 Worst Paying College Degrees.
20’s Money has a good post on Next Level Blogging.
Money Under 30 takes a look at What You Need To Get Approved For A Mortgage.
Wealth Pilgrim deals with How To Find Start Up Capital.
Dividend Growth Investor analyzes the biggest Dividend Investment Myths.
Christian PF talks about how Buffett & Gates Ask Rich To Donate 50% Of Their Wealth.
It’s always important for value investors to be able to tell the difference between a value stock and a value trap. Value stocks are stocks that are trading below their true intrinsic value. These stocks are sometimes unfairly beaten down due to market events. Value traps are stocks that look like good investment opportunities and may appear to be cheap but really are not. Value traps deserve to trade at low prices. A value stock is a good company trading at a distressed price. A value trap is a distressed company trading at its proper price.
Value Stock or Value Trap?
Take Research in Motion for example. Research in Motion (RIMM) trades at $52 a share as shares plunged over 10% after releasing subpar earnings Thursday. Sales and subscribers slightly underperformed Wall Street expectations. Research in Motion continues to lose market share to the iPhone and Android phones. Analysts have been rushing to downgrade the stock hitting it with sell ratings. Research in Motion is a stock that is close to becoming a value play. If investors get an opportunity to buy shares in the 40’s, that would be a solid purchase.
Despite all of the negativity over Research in Motion, the company is still adding subscribers. The company is still growing just at a slower rate. 2011’s EPS is expected to come in at $5.90. Research in Motion is cash rich with $1.5 billion in cash and no long term debt. The company has even started buying back 3% of the outstanding shares. The key for RIMM is its new Blackberry phone. Will its new Blackberry phone be able to take market share from the Google’s and Apple’s of the way? Analysts believe that will all depend on how successful RIMM’s new apps and browser is.
I have to admit there is some risk in buying RIMM but the opportunity to buy a solid tech company trading at just 7.5 times earnings would be attractive to me in the mid 40’s.
Do you think that Research in Motion is a value stock or a value trap?
Keep an eye on shares of US Steel (X). The stock has dropped to $42 per share. I will be looking to start a position in US Steel in the 30’s. US Steel is currently trading at just 7 times next year’s earnings projections. Even if the company’s 2011 EPS is off by 25%, US Steel would still trade at just 9 times earnings. The stock would be an absolute steal in the 30’s.
What one investment is guaranteed to give you a 100% return on your money? The answer is…..none! I wrote this post to illustrate how con artists and scammers use tricky verbiage like this to entice investors to turn over their hard earned dollars. Anyone who offers you a 25%, 50%, or 100% guaranteed return on your money is lying. Let’s take a look at code words used by individuals trying to defraud you of your hard earned money.
1. I guarantee that you will…..
Most individual guarantees are not even worth the paper that they are written on. The only guarantee that you should believe when investing is one that is backed by the Federal government. FDIC and US Treasury guarantees are good as long as the United States government is still viable.
2. Double your money in..30, 60, 90 days, etc.
There is no savings account, CD, stock, bond, mutual fund or security that can guarantee you this kind of return in such a short period of time. The higher the return that you can get, the greater the risk you are taking. Any investment that has the potential to double your money also has the potential to lose all of your money.
3. This deal is only good for today and today only.
Always ask yourself what deal is so great that I have to give an answer right now. Con artists and fraudulent companies use high pressure sales tactics to force you into making irrational decisions. They know that you wouldn’t make these decisions if you had time to think it over.
4. You will be a millionaire in a few months.
Get rich quick schemes always offer big dreams only to end in disappointment. Is it possible to become a millionaire in a few months? It’s possible but highly improbable. Unless you hit the lottery, make it big on American Idol, or invent the next iPod, chances are it may take you a little longer than a few months to get rich.
5. My friend’s friend _________ got rich during this.
They always know a guy who got rich off this idea but it’s never the person that you are talking too. Larry, Rich, Mike or whoever got in early has made all of the money. Mike may live in a mansion and drive a Lamborghini but the guy who is pitching you on this great idea does not.
Always remember if any business opportunity or investment sounds too good to be true then it probably is.
BuylikeBuffett no longer features inline ads. I decided to delete all of the inline ads. I never saw the inline ads before because I always log on from the same PC so they were not showing up. I logged into my site from a different PC and found it quite aggravating that whenever I rolled over a text an ad would pop up. So no more inline ads! I hope this makes your reading experience better at Buylikebuffett.