For better or worse, members of Congress these days have no restrictions keeping them from buying equities. This makes looking at their portfolios especially interesting. We decided to take a look at the holdings of House Minority Leader Nancy Pelosi. Fortunately for us, it turns out that Pelosi is quite the active investor. In fact, she was one of the wealthiest representatives that we looked at, while also being one of the most active traders.
In addition to multiple valuable California real estate holdings, Pelosi owns a Napa vineyard, and stakes in several private businesses, including the United Football League and its Sacramento-based team. Interestingly, she added significantly to these football-based investments late in 2010. Nonetheless, we will focus on her stock holdings. While there are too many to mention in one article, the following are some of Pelosi’s largest holdings and recent trades.
Apple (AAPL): As a representative of California, it is only fitting that Pelosi is a big investor in the state’s most iconic company, Apple. Even after cashing in on millions of dollars in shares in 2010 (for capital gains of $1M-5M), Apple remains her second largest common stock holding, with a year-end asset value between $500,000 and $1,000,000.
Apple has been one of the biggest success stories of the past decade, rising to become the second largest company in the world by market cap. Its innovative products have brought market dominance and a customer base as loyal as any. As expected, Apple’s financials are excellent. In addition to TTM ROE of 38% and an operating margin of 29%, the company has an impeccable balance sheet. The current P/E of 15.5 is higher than the main PC makers, but lower than much of the tech industry, and the PEG of .7 is very attractive.
Worries about CEO Steve Jobs’ health remain, but despite his obvious importance, we don’t see the company falling off in his absence. Overall, Apple may be maturing, but it still has plenty of growth opportunity to go along with its established success. With a relatively cheap valuation, considering its quality, we think Apple is a good buy right now.
Visa (V): Visa is the largest equity holding in Pelosi’s portfolio, with a total asset value between $1-$5 million. As people continue to build up more and more debt, especially in emerging markets, there are plenty of reasons to like Visa. With a market cap of $62B, it is one of the largest credit card companies. Its operating margin of 58% is exceptional, and earnings grew over 25% in the last year. Despite this earnings growth, the stock is actually down 2% in the last 12 months, an early sign of good value.
Furthermore, consensus EPS estimates, which Visa has been consistently beating lately, project EPS to grow significantly in the next few years. The trailing P/E of 16.6 and price/book of 2.4 are lower than those of its big rival Mastercard (MA), but higher than several other main competitors. The firm has a very favorable balance sheet, with almost no debt at all. Visa’s PEG of .7 is also very attractive, a sign of its growth prospects.
When you combine the growth in online shopping and the increase in private debt via credit cards with Visa’s strong position in a market with substantial barriers to entry, it is easy to see why Visa should be successful moving forward. This will especially be the case as they develop even newer, easier ways to use your credit card, such as the new Isis system being tested in Austin and Salt Lake City. We think that Visa is another good buy right now because of the valuation and its qualitative prospects.
Cisco (CSCO): This is one that Pelosi actually does not own anymore, but rather one that she used to have major holdings in, selling them all in the last year. She sold around $1M worth of shares for a capital loss of $100,000-$1M. Turns out that she made a good decision, at least in the short run. Cisco has been hammered lately, losing over 30% since Pelosi’s sales, and down 24% year-to-date. A tech giant and former superstar, this networking solutions company has a market cap of $84B and offers a 1.6% dividend. We think there's reason to like Cisco, even though it is likely out of its high growth stage.
The company’s beating has made it a very cheap buy. Its price has fallen chiefly because of concerns about its efficiency and its ability to hold off market competitors. In response, the company is cutting its peripheral operations to focus on its core products, hoping to avoid becoming bloated. Cisco has a P/E of 12, which is low for its industry, and also has very little debt. Its operating margin of 20% is still respectable as well. As mentioned, we admit that Cisco may have seen the end of its high growth days, but we still think it is a strong company, and with its P/E at its lowest point in five years, Cisco looks like a good value to us.
Yahoo (YHOO): Yahoo! is another stock that Pelosi sold off for a substantial loss during the period. According to the filing, she sold up to $250,000 worth of stock for a loss of $100,000-$1M. Since the time of her sale, Yahoo has been up and down, but is currently down around 8% from the time of her sale. Things have taken a turn for the worse for Yahoo! as it continues to lose ground to competitors like Google (GOOG). Its Internet search business has fallen way behind Google’s, and even Microsoft’s (MSFT) Bing has entered the picture. Despite this weakness, Yahoo’s real value is derived from its news and other articles. Yahoo! Sports remains the most visited sports site on the web, Yahoo! Finance is a major source of financial news, and the front page remains a popular visit for its news and interest stories.
The company has had issues with its holdings of China’s Alibaba (OTC:ALBCF), although it could turn out to be a very valuable holding, and shareholders are calling for the CEO to be fired. Even though revenue has fallen the last few years, EPS has been on the rise and is expected to grow even more. Yahoo has a P/E of 17, just below Google’s P/E of 18.5. Its PEG is just over 1, compared to Google’s of .6. We are overall neutral on Yahoo. On one hand, it has gotten somewhat cheap from all the bad press, considering that it is still a major player on the web (it is still No. 2 in online display ad revenue), and earnings are growing. On the other hand, there are certainly reasons for worry, as mentioned above, and with the similar valuations, we would go with Google before Yahoo.
eBay (EBAY): eBay fits into the same category as Yahoo! regarding Pelosi’s portfolio: She emptied her position, worth up to $250,000 for a loss of $100,000-$1M. However, her sale of eBay is the first big mistake in her trading. Pelosi missed out on substantial gains with her sale, as the stock has shot up over 25% since then. The sale may have been political though, as ex-eBay CEO Meg Whitman emerged as a high profile candidate in the California governor’s race. eBay is somewhat unique, as it does not have any big competitors that offer the same thing as its bread and butter auction marketplace. The company has a market cap of $36.8B, and is trading at a P/E of 20. Despite Craigslist’s rise, eBay’s revenue has been growing consistently the last five years, as online shopping becomes easier and more widespread. PayPal is one of the most widely accepted online payment methods around, and should grow with the rise of smartphones, tablets, etc.
eBay should also see plenty of growth opportunities abroad, and it owns, or owns part of, an impressive stable of other websites and online services. Perhaps one of the most exciting developments for eBay is that it is planning fulfillment centers (handling, packaging, etc.) for its merchants, which could help it steal business from its larger competitor Amazon (AMZN). As mentioned before, eBay is a little hard to compare with other companies, but what we’ve seen looks good. Its valuation is way below Amazon’s, and despite being less than half of the market cap, eBay had higher net income for 2010. In general, there seems to be a lot to like about eBay, so we say it’s a buy. The company is well diversified, has plenty of growth opportunities, and has a solid valuation.