The day after Bank of America (BAC) announced that it had secured a $5 billion investment from Warren Buffett (BRK.A), we thought it was only appropriate to see what else the Oracle of Omaha has bought lately. As one can see, Buffett has chosen other financials too as well as some defensive plays.
Mastercard Incorporated (MA) – Strong technical factors are leading many investors to believe that this stock is due for an upswing. It doesn’t hurt either that the company is offering a dual debit/credit card in partnership with Fifth Third Bancorp (FITB). As explained here, consumers will be able to choose whether they want funds taken out of their account or placed on credit to be paid later. As far as value metrics go, MA stock is currently trading at a premium compared to competitors like American Express (AXP), Visa (V) and Discovery (DFS). Note MA’s price to earnings ratio of 20.01, compared to 12.49, 8.04, and 16.39 for those other stocks, respectively. Price to sales is also high, while other statistics are more middle-of-the-pack. Cash flows for MA have been mixed lately, with $1.012 billion coming in during 2010, while $303 million has been lost for 2011 so far. Poor cash flow in 2011 can mostly be attributed to an aggressive stock repurchase program, and the company is currently sitting on $3.6 billion in cash. In fact, Standard & Poor’s has take notice with its upgrade of MasterCard’s long-term debt rating. S&P explained the move as due to the company’s “excellent profitability” as well as its strength during this tough economy. It also said though that new regulation such as the Dodd-Frank Act might hurt the company’s future prospects.
Dollar General Corporation (DG) – At a time when many stocks have zigged, DG has zagged. In fact, the stock is up nearly $3 from lows of $30.5 not too long ago. The next earnings report is coming out on Tuesday, and many shareholders are very excited. Analysts are expecting about the same earnings as last quarter, and more information about what to look for on Tuesday can be found here. A good discussion of past performance can also be found here, and analysts are currently quite bullish on this stock. Twelve have it rated as a buy, six have it rated as a hold, and none have it rated as a sell. Note that Dollar General primarily competes with Dollar Tree (DTR), Family Dollar Stores (FDO) and Wal-Mart (WMT). Most of DG’s statistics are average compared to competitors, although price/earnings to growth is somewhat low. This number is 0.84 for DG, 1.08 for DLTR, 1.10 for FDO, and 1.08 for WMT. As consumers flock to Dollar General in these hard economic times, the company’s cash flows have done quite nicely. Also, $275.37 million came in for the 52-weeks ending January 28, and $105.02 million came in for the 13 weeks ending April 29. If you’re an investor who thinks the economy is still in dire straits, this may be the stock for you.
Verisk Analytics, Inc. (VRSK) – This specialist in risk management has traded in the range of $30 to $35 for quite some time now. It was recently upgraded by Keefe Bruyette, which set a target of $39 and made note of the company’s strong growth prospects. As explained here, VRSK has some serious pricing power. Earnings were also reported recently, and that performance was quite solid. Although the company’s mortgage business has suffered a bit due to volatility in that industry, operations related to insurance are doing very well. Acquisitions of Bloodhound Technologies and Health Risk Partners have also added value to the firm. Shareholders have also been excited about stock repurchases made by this company recently. Although Verisk’s closest competitors of Deloitte Consulting, DMG Information and LexisNexis are all privately owned, we’ll discuss how Verisk compares to the market overall. Margins are great, with gross margin at 59.92% and operating margin at 38.23%. Value metrics are not quite as good, however, and a price to sales ratio of 4.59 is one statistic in particular to be aware of. Cash flows have been close to neutral with $16.55 million leaving the company in 2010, and $3 million leaving the company in 2011. As mentioned before, stock repurchases have played a role in this.
Johnson & Johnson (JNJ) – Johnson & Johnson has fared quite well compared to many other stocks lately, as investors appreciate one of the world’s most respected companies. Having a dividend yield of 3.5% doesn’t hurt either. The company has received a boost with good news concerning its prostate cancer drug Zytiga. This drug recently received approval in Canada, and regulators in Europe like it too. On the other hand, Johnson & Johnson has seen some very slow revenue growth lately, only managing to improve earnings through cutting costs. More information about this slow and steady stock can be found here. In fact, the premium that Johnson & Johnson trades at cannot be doubted when its price to earnings, price/earnings to growth, and price to sales are all higher than important competitors. Consider Abbott Laboratories (ABT), Covidien (COV) and Novartis (NVS) for a few stocks that are a little cheaper right now. At the same time though, gross margin of 69.25% and operating margin of 26% are quite high. Cash flows, on the other hand, present a mixed picture. Also, $3.545 billion came in during 2010, while $4.381 billion has been lost in 2011 so far. Note that 2011’s poor cash flows can mostly be attributed to investing activities besides capital expenditures.
The Bank of New York Mellon Corporation (BK) – BNY Mellon has moved with the banking industry overall lately, which in a word means down. Regardless, BNY Mellon has been named the safest bank in the world for three years in a row by Global Finance. Executives have attributed this to a strong balance sheet and wise capital management, and we are inclined to agree. Also, BNY Mellon recently announced that it will join CME Group for its over-the-counter clearing. This is mostly due to regulatory pressures, although if anything it will help reduce risk in the industry overall. Price to earnings ratio and price to sales ratio are about middle-of-the-pack compared to other asset managers such as Barclays (BCS), JPMorgan Chase (JPM) and State Street (STT). Operating margin is 28.74%, and that too is average. Price/earnings to growth ratio is a bit high though, at0.80 using expected earnings for the next five years. Cash flows for 2011 have been quite strong, with $1.885 billion coming in thus far. The company did see $57 million leave in 2010, and this is mostly due to investing activities. BNY Mellon has also been in the news lately for its announcement that it will lay off about 1,500 workers, and this is a move that many in the banking industry are making right now.