We admire David Tepper of Appaloosa Management LP. This investing guru trades fast, but as of 12/31/10, he maintained a portfolio of 77 stock total stocks worth $4.9 billion. Among the stocks in his portfolio, 21.9% were technology, 31.6% financials, 4.6% consumer services, 10.1% healthcare, 6% consumer goods, 4.8% basic materials, and 2.3% industrials, and remaining 18.7% in a variety of industries and sector classes. As always, use the names below as a starting point for your own due dilligence.
SunTrust (STI): SunTrust investors still took a drubbing during the 2008 crisis as the bank was forced to accept TARP relief, but the company has a promising road ahead of it. In its home market of Atlanta, many area banks are suffering, with SunTrust the first player to capitalize on competitors' woes. CEO James Wells became chief executive a year before the crisis hit which spurred a cost-saving initiative at the coaxing of investors looking for higher growth. The move was well-timed, as the company picked up hundreds of millions in savings to help buffer its finances during the ensuing fall-out. Population growth in the south should remain a tailwind for SunTrust, and net write-offs should continue to drop. We value the company at $36 per share using a 10.5% cost of equity.
Medtronic (MDT): Another dominating business, this company produces medical equipment and holds market leading positions in heart devices, insulin pumps, and spinal products. Known once for its leaning too much on its heart disease business, the company has moved into other therapeutic areas, a good move in our opinion. Shares have appreciated over the past three months since we first wrote about the company here and again where we declared it one of our 10 dividend "kings" here.
Bank of America (BAC) BAC trades, not surprisingly, at - 38.9 times EPS, 0.7 times book value per share, and 1.3 times revenues per share. In comparison, the industry averages are 28.2, 0.9, and 1.4, respectively. It is also worth noting that BAC traded near three times sales from 2001 to 2007. EPS was - $0.37 in 2010, after showing - $0.27 in 2009. The Street expects EPS to turn around in 2011. They give a range of $1.05 to $1.75. The company reports Q1 2011 results on April 11. As we wrote about here, we hate Bank of America and think Buffett was spot on when he dumped shares.
BB&T Corporation (BBT): BB&T is southeastern bank that has found its footing again and could increase its dividend. Currently trading at $26/share, $5 below our fair value estimate, BB&T increased market share during the crisis. It has a healthy 2.25% dividend, but given its headwinds, could revise that upward. Deutsche Bank just upgraded them to a buy rating on March 11.
Citigroup (C) has shown four straight quarters of profit, after being squarely embroiled in the financial meltdown of 2008. In sum, the company made $10.6 billion in profits in 2010. The company also grew revenues by 7.87% in 2010, and 52.08% in 2009. The EBT margin in 2010 improved to 15.22%. In its heyday, Citigroup traded with P/S multiples in the 3’s. Now, it is 1.5, and the industry average is 1.3. EPS came in at $0.35 in 2010, recovering from -$0.80 in 2009. Analysts expect 2011 to produce an EPS between $0.32 and $0.55. Shares trade under $5. This is a long-term play.
General Motors (GM) When coming from such lows, mega highs are needed to get back up. EPS estimates for this year are thus, understandably hyperbolic: 574%! (For some leveled perspective, GM is looking at a much more reasonable five-year EPS projection of 24%.)We’ll see this week if we’re on track. The leader of the U.S. car market, with 19% of it in its pocket, GM has fought a very rocky battle over the past few years. With new leadership that has an eye on a clean debt book, a condensed and somewhat diversified product portfolio and healthy North American operations it looks like GM, dependent on consumer behavior of course, might be able to take off its boxing gloves for a bit, or at least get itself out of the corner and land some punches of its own.
United Continental (UAL): United overpaid for Continental Airlines, and the company will face a tough job continuing to integrate the airline over the next few years. Competitors, both established and new, as well as significant fuel price increases will hamper this company. UAL can grow revenues with higher ticket prices and we expect mid margin expansion due to synergies developing, albeit at half the $1 billion figure offered by management. We value shares at $23 apiece using a 12% discount rate.
Wells Fargo (WFC): We think Tepper is right that Wells is among the best of the big banks. Wells has done a great job of maintaining and gaining market share in all of its operating segments while keeping a tight leash on expenses. WFC trades at $32.10 at the time of writing.
JP Morgan (JPM): This company trades with a price earnings of 11.5, price/book of 1.1, and price sales ratio of 1.8. The respective industry averages are 11.2, 0.9, and 1.4. Between 2001 and 2007, the respective P/S multiples were 2.5, 1.6, 2.3, 2.6, 2.6, 2.8, and 2.1. For quarter one of 2011, the company expects quarterly net charge offs to be running at $1.2 billion +/-. Chase and WaMu credit losses are expected to continue to improve, so that Chase losses are below 6.5% in Q1 2011. In the corporate division, net income is expected to be $300 million +/-. We value shares at $56 apiece using a conservative 11.5% cost of equity. And we think this is one of four financial stocks outdoing its peers. In 2010, EPS were $3.96, which was an increase of 75.22%, after rising by 64.96% in 2009. The Street gives a range of earnings estimates between $4.45 and $5.50. Q1 2011 earnings are released on April 11.
Microsoft (MSFT) Trading at 25.70 with a forward P/E of 9.0 Microsoft defined what it was to be a new school blue chip so much so that calling it new school today will get you odd looks. It has been trending lower for the past couple of months, but didn’t react sharply to news out of Japan. Currently analysts, Oppenheimer among them, have price targets for the company as high as $36/share, giving it plenty of room for upward movement.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.