New York-based AllianceBernstein Holding (AB) was founded in 1987. AllianceBernstein “is a research-driven investment firm that provides investment management and related services to a range of clients." The company offers various investment products and services, such as institutional services, retail services and private client services. With $477 billion of assets under management, AllianceBernstein is a truly global investment company. Here is an analysis of AllianceBernstein's top 10 equity holdings (data from Edgar Online) with thoughts on their market-beating potential:
JPMorgan Chase & Co. (JPM): Established in 1823, New York-based JPM is one of the oldest financial institutions in the world. Thanks to a relatively conservative management tradition, the company survived several deep financial crises. Besides traditional banking services JPM offers several financial services such as investment banking and asset management. With a market cap of $180.16 billion, the company has a P/E ratio of 10.04, and a forward P/E ratio of 7.97. Net profit margin is 19.55%. The dividend yield of 2.21% is one of the best in the industry.
Based on a five-year EPS growth estimate of 8.91%, JPM has a T-Metrix grade of 6. A friend of mine who worked several years for JPMorgan's research department has been buying JPMorgan stock since 2005. Even at the peak of financial crises he continued accumulating JPM. He believed that it will be his early retirement stock. Surely, financial stocks can be rewarding for the long run, but my preference is Citibank (C), which has a more international reputation.
Apple Inc. (AAPL): Apple engages in mobile communications, media devices and digital content and applications. A decade ago Apple’s reputation was limited to only Mac users. However, the innovation of iPhone changed the way the world thinks about Apple. Fans are waiting for the next Apple product, whether it is the iPhone 5 or iPad 3. Apple is a perfect example of both incremental and radical innovations. The market cap is $320.57 billion. Trailing P/E ratio is 16.52, and forward P/E ratio is 12.23. Profit margin stands at 22.36%. The company is expected to have EPS growth of 19.90% in the next five years.
If analyst estimates hold, Apple can replace Exxon (XOM) as the world’s largest company in the near future. While I have been on the bearish side for Apple, the recent earnings pleasantly surprised the Street. The current price level is well justified for a 20% growth rate.
Wells Fargo & Company (WFC): San Francisco-based Wells Fargo was founded in 1929. Wells Fargo, a Warren Buffett favorite, was among the biggest winners in the financial crisis, but the acquisition of Wachovia has yet to show its fruits. With a market cap of $149.15 billion, the company has a P/E ratio of 11.67, and a forward P/E ratio of 8.14. Profit margin is 16.50%, and dividend yield is 1.70%. The company is expected to have EPS growth of 9.25% in next five years.
Similar to JPM, the fundamental parameters give Wells Fargo a T-Metrix score of 6. While Wells Fargo is a one of the safest financial investments, it does not have the emerging market exposure of Citibank.
Pfizer Inc. (PFE): Pfizer, the hedge funds' favorite bio-pharmaceutical company, was founded in 1849. David Einhorn and Donald Yacktman hold Pfizer among their top 10 favorite stocks. Pfizer has a market cap of $164.22 billion. The P/E ratio stands at 20.15, and forward P/E ratio is 9.01. Profit margin is 9.01%. Analysts estimate EPS growth to be around 2.10% for the next five years.
Dividend yield of 3.89% puts Pfizer among the top five large-cap pharmacy companies paying substantial dividends. There is a trend of mergers and acquisitions in the pharmaceutical business. While that is a healthy sign, it will take time to show the fruits of this trend. It is a safe stock to invest, but relatively smaller-sized pharmaceutical companies probably have a better future.
Johnson & Johnson (JNJ): The company was founded in 1886, and is based in New Brunswick, New Jersey. JNJ engages in the research and development, manufacture and sale of various products in the healthcare field worldwide. With a market cap of $178.86 billion, the company has a P/E ratio of 14.80, and a forward P/E ratio of 12.46. Earnings per share are expected to increase by 6.18% in the next five years. Net profit margin is 19.77%.
Similar to Pfizer, a dividend yield of 3.49% puts JNJ among the top five drug manufacturers with substantial dividends. JNJ also has a great safety of margin. It probably would not make you rich, but it could be a good anchor for a safe retirement portfolio.
Vale S.A. (VALE): The company was founded in 1942 and is headquartered in Rio de Janeiro, Brazil. It is a diversified metals and mining company. The market cap is $161.92 billion. Vale has a low P/E ratio of 9.52, and an even lower forward P/E ratio of 6.32. The company is expected to have EPS growth of 10% in the next five years. Profit margin is 36.67%, and the dividend yield is 1.24%.
Compared to overvalued Canadian energy companies, Vale is an excellent choice for international diversification. If the analyst estimations of 10% holds, it will be a star in the sector. Brazil not only has a large amount of natural reserves, but also has the means to utilize existing sources. Vale also has the advantage of being a national company. The current P/E ratio is below the fair level.
Google Inc. (GOOG): California-based Google was founded in 1998. Although Google’s primary business is offering an optimized index of the websites, Google is in the business of cell phones, software, satellite location services as well as many other things that help to make our life easier. With a market cap of $172.44 billion, the company has a P/E ratio of 19.62, and a forward P/E ratio of 13.56. Net profit margin is 28.43%. Earnings per share are expected to increase by 19.29% in the next five years.
Google shares over-reacted to analyst estimate misses, and Google also lost its No. 1 brand value to Apple. However, Google is still the center of innovation, and shares could be accumulated if prices fall below $500.
The Goldman Sachs Group, Inc. (GS): New York-based company was founded in 1896. Goldman Sachs is famous as an investment bank but the company offers institutional client services and lending management as well. The market cap is $78.13 billion. It has a P/E ratio of 16.48, and a forward P/E ratio of 7.81. The company is expected to have EPS growth of 5.50% in the next five years. Profit margin is 16.87%, and dividend yield is 0.93%.
Recently, shares brake down the $155 resistance with a large margin. The company is still battling with mortgage-backed securities civil fraud charges. It is better to avoid GS until the stock shows a strong sign of recovery.
Schlumberger Limited (SLB): Schlumberger was founded in 1927 and is headquartered in Houston, Texas. The company is in the oil and gas industry which supplies technology, integrated project management and information solutions. With a market cap of $112.16 billion, the company has a P/E ratio of 21.75, and a forward P/E ratio of 16.21. Net profit margin is 14.16% and dividend yield is 1.21%. Earnings per share are expected to increase by 19.84% in the next five years.
As oil explorers look for new reserves, there will be an explosive demand for the products. However, the stocks are a little pricey. It is best to wait until the earnings confirm the higher expectations. It could enter into a commodity-related portfolio after a correction in commodity prices.
Gilead Sciences, Inc. (GILD): California-based Gilead was founded in 1987. It is a bio-pharmaceutical company that engages in the development of therapeutics for the treatment of diseases. The market cap is $32.52 billion. It has a P/E ratio of 12.86, and a forward P/E ratio of 9.09. Profit margin stands at 34.47%. The company is expected to have EPS growth of 14.76% in next five years.
If the analyst estimates hold, with a T-Metrix score of 7, Gilead can be a nifty stock for a growth oriented portfolio. Given its nice niche in HIV-related treatment products, it could be a perfect takeover target. Credit Suisse has a target price of $48, implying 18% upside potential in near-term.
Disclosure: I am long C.