Self-made Billionaires tend to have good business sense and they often come out on the winning side of a deal. If you know that someone usually plays a winning hand in business, investing and other financial dealings, it could pay to "bet" along with them. They frequently have access to some of the best research and often have industry contacts that can provide valuable insights. For these and other reasons, it makes sense to follow and sometimes invest alongside billionaires who have a history of money-making investments. With that in mind, here is a closer look at two stocks that billionaires have invested in, that still look cheap based on the long-term upside potential:
Johnson & Johnson (JNJ) develops, manufactures and markets medical devices, drugs, and healthcare products. It might not be growing as fast as some companies, but it does have a solid product line, which provides a stable source of revenues. Many consumers are familiar with its well-known healthcare products, which include: Motrin, Band-aid, Listerine, Reach, Splenda, Tylenol, Lubriderm, Sudafed, and many others.
Johnson & Johnson has a very strong balance sheet with about $21 billion in cash and around $16 billion in debt. This strong financial position reduces risks for investors and it gives the company flexibility when it comes to dividend increases. Analysts expect the company to earn about $5.41 per share in 2013 and for earnings to rise to $5.76 per share in 2014. This puts the price-to-earnings ratio at just about 13 times, which is below the market average of roughly 15 times earnings for the S&P 500 Index (SPY). A company like this probably deserves to trade for a premium to the market due to its strong brand names, solid product line and impressive history of dividend payments. This company has raised the dividend for about 50 years in a row. In 2005, the quarterly dividend was 33 cents per share, but thanks to regular increases, it is now at 61 cents per share. That means the dividend has nearly doubled in just about eight years. Billionaire Donald Trump said he bought shares of this company and with a relatively cheap valuation, solid balance sheet and history of rising dividends, it is easy to see why.
Here are some key points for JNJ:
Current share price: $78.42
The 52-week range is $61.71 to $78.69
Earnings estimates for 2013: $5.41
Earnings estimates for 2014: $5.76
Annual dividend: $2.44 per share, which yields 3.1%
Bank of America (BAC) shares have been trending higher, but the stock still looks cheap for investors who have a long-term view. Analysts expect the company to earn about $1 per share for this year. However, earnings are expected to surge by about 30%, to around $1.30 per share in 2014. That would put the price to earnings ratio at just about nine times, which is significantly below the market average. The outlook for earnings could continue to improve for BofA well beyond the next couple of years as the housing market rebounds and that could mean that this stock deserves a higher price to earnings multiple. Other positive catalysts would include improvements in the unemployment rate, and continued progress on legal settlements relating to the housing crisis and in particular, the acquisition of Countrywide.
Bank of America recently settled a lawsuit, which accused the company of improper foreclosure practices. It also settled with Fannie Mae, the government-backed mortgage agency. These settlements have impacted earnings results in recent quarters, and the company still has pending litigation. However, investors seem to be increasingly focused on "normalized" earnings, which is what analysts expect the company can earn under normal conditions once the litigation and related housing crisis losses are over. For the fourth quarter of 2012, BofA earned $367 million or about 3 cents per share, however, these results were impacted by settlement charges.
A couple of billionaires have invested in BofA stock. Donald Trump (see link above) said he bought this stock and Warren Buffett also purchased a significant stake, which his company continues to hold today. Bank of America has one of the largest networks of retail banking branches, plus it owns Merrill Lynch which is a very valuable asset, especially as the equity markets rise to new highs and gain more investor interest. The billionaires invested in this stock appear to be looking towards the long-term potential this company has as the American economy rebounds, and the reasonable price-to-earnings multiple. BofA stock also appears undervalued based on book value, which is about $20.24 per share.
Here are some key points for BAC:
Current share price: $12
The 52-week range is $6.72 to $12.44
Earnings estimates for 2013: $1
Earnings estimates for 2014: $1.30
Annual dividend: 4 cents per share, which yields .3%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.