9 Stocks Guru Paul Tudor Jones Recently Bought: Part II

by: Investment Underground

<< See Part I

Chimera Investment (CIM) is currently yielding 15.8%. The next dividend payment of $0.14 is on April 28 for investors of record at March 31.

The company grew profits by 64.47% to $533 million in FY 2010 through October, after posting a return to positive territory in FY 2009 by drawing in $324 million in profits from - $120 million in FY 2008. For Q1 2011, the company made $156.22 million in profits. In comparison, Q1 2010 resulted in $95.46 million in profits.

For 2011, the Street expects non-GAAP EPS to be between $0.53 and $0.70. In 2010, non-GAAP EPS was $0.66. The next earnings release is on May 2, with analysts expecting between $0.13 and $0.17. In comparison, Q1 2010 produced $0.19. Trading in the low 4s, it beat earnings estimates for six of the last nine quarters. This play is not purely for capital appreciation, but it is for the dividend payments. We consider this company to have a lot of potential. See other examples.

The company invests in U.S. government and private residential mortgage-backed securities representing interests in obligations backed by pools of mortgage loans. It also has a debt to equity ratio of 1.10.

Abbott Laboratories (ABT) is no stranger to the dividend arena. Long deemed a “dividend champion” (David Fish), having not only paid but also increasing its payouts for 39 straight years. The 3.8% current yield is well above average and the 65% payout ratio suggests future sustainability. In recent years the dividend growth rate has slowly been increasing, from an 8.8% average increase in the 10 year average to the 10.6% average increase in the 3 year average. It might not be poised for huge growth, but ABT does allow for a strong combination of a high current yield and steadily increasing payouts. If you believe the heath care sector has been left behind, it could be an opportune buy.

Expedia, Inc. (EXPE): Expedia is an online travel company. Some of its many sites include expedia.com, hotwire.com and hotels.com. Their current stock price is $22.23. Expedia’s trailing P/E is $15.22, and their forward P/E is $10.84. Their dividend yield is currently 1.30%.

Merck & Co Inc. (MRK): One of the largest players in the pharmaceutical field, this $100 billion company develops a variety of treatments for conditions ranging from cardiovascular disease to osteoporosis, and also develops vaccines to prevent conditions such as hepatitis B, HPV, and shingles. Merck currently has a strong portfolio of products including three recently released blockbusters in Januvia, Isentress, and Gardasil, but patent losses on other blockbusters could lead to sales volatility soon.

Merck lost patent protection on two of its major drugs in 2010, Cozaar and Hyzaar, and the upcoming patent loss in 2012 on Singulair, which makes up over 10% of Merck’ sales, will cause Merck to lose one of its main sources of revenue. The company has no reliable late-stage drugs in the pipeline to offset the loss; four of Merck’s late-stage drugs in the last three years have either not received approval by the FDA, or have had poor clinical data. It is that potential revenue drop-off that drove Merck to acquire Schering-Plough for $40 billion in 2009, a deal that we believe positions Merck for very strong future growth.

Schering-Plough boasts a strong pipeline of late-stage drugs, many of which have blockbuster potential, and faces limited patent-loss in the near future. Merck is also improving growth prospects by taking steps to increase its presence in emerging markets.

Merck’s India unit and Sun Pharmaceutical Industries LTD, an Indian multinational pharma company, recently formed a joint venture to focus on emerging markets, which are expected to drive 90% of world pharmaceutical growth. The combination of Merck’s clinical expertise and global footprint with Sun’s proprietary technologies and manufacturing capability should improve Merck’s future growth, and should help offset some of the loss of revenue from Singulair. The acquisition of Schering-Plough, combined with Merck’s new partnership with Sun Pharmaceuticals, makes us bullish on Merck’s future prospects, despite patent loss on Singulair.

FirstEnergy (FE): FirstEnergy is a conglomerate of 7 electric utility operating companies, which serves 4.5 million customers in Ohio, Pennsylvania, New Jersey and New York. As well, FirstEnergy owns a generating and marketing subsidiary, First Energy Solutions Corp and a regulated transmission utility. The company's power generation assets are 54% coal and 29% nuclear, and the remainder a combo of oil and natural gas and some hydro. We also believe this stock is a very safe idea for the ultimate retirement portfolio.

Newmont Mining (NEM) has a ROE of 11.96% over the first 9 months of 2010, compared to 6.9% in the same period in 2009 and 14.57% in FY 2009. The peer group includes Goldcorp (GG), Kinross Gold (KGC), and AngloGold Ashanti (AU). For the first 9 months of 2010, Goldcorp’s ROE is 7.28%, and it was 1.58% for FY 2009. For FY 2010, Kinross Gold has a ROE of 5.75%, and AngloGold Ashanti earned a ROE of 3.76%. The gold sub-industry has an average ROE of 12%.

Taking into account interest expense, the ROA for the first 9 months of 2010 for NEM is 6.87%. The same item for the first 9 months in 2009 is 3.6% and 6.8% in FY 2009. Goldcorp has a ROA of 5.29% in the first 9 months of 2010. In FY 2009, it was only 1.2%. Kinross Gold and AngloGold Ashanti have ROAs of 4.70% and 1.35% in 2010, respectively.

PEG ratio for NEM, GG, and KGC are 1.5, 0.4, 2.5, respectively. 1.4 is the sub-industry’s average.

The P/Es for Newmont Mining, Goldcorp, Kinross Gold, and AngloGold Ashanti are respectively 14.26, 21.9, 25.4, and 208.1, for the trailing 12 months. The average P/E for the gold sub-industry is 14.

For Newmont Mining, EPS climbed 93.4% from $1.52 to $2.94 in the first 9 months of 2010 vs. the first 9 months of 2009. Goldcorp’s EPS is up by 600% in the first 9 months of 2010 relative to the same period in 2009. Kinross Gold and AngloGold Ashanti show EPS changes of 111.3% and 122.4%, respectively.

40.8% of income remains before income taxes for Newmont Mining in the first 9 months of 2010. The same stat for the same period in 2009 is 33.7%. Also, the profit margin is 42.4% in the first 9 months of 2010, and 34.1% for the same 9 months in 2009. The EBT and profit margins for Goldcorp are 60% and 36.8%, respectively, in the first 9 months of 2010. In FY 2010, for Kinross Gold and AngloGold Ashanti, 38.5% and 7.3% are the respective EBT margins, and 40.1% and 19.6% are the respective profit margins. The average profit margin for the gold sub-industry is 13.76%.

Newmont Mining will announce Q4 2010 and FY 2010 earnings on Thursday, February 24. The current yield is 1% with the next ex-dividend date on March 11 and payment date on March 30. If you’re looking for some other mining names, we believe these two companies offer good value.

Progressive (PGR): Operates only in the US and Australia. Its EBT margins in 2010 and 2009 were 10.69% and 10.46%, respectively. EPS grew by 2.55% in 2010, after recovering from negative territory in 2009 from - $0.10 to $1.57. The street expects the company to bring in $1.43 to $1.72 in EPS in 2011. We are more optimistic due to the company’s aggressive marketing strategies and solid business model.

First Solar (FSLR): The world’s largest solar company, capitalized at over $12 billion, First Solar is the only major panel maker to not employ silicon chips, instead using cadmium telluride. Its inimitable cost savings in production have brought First Solar to the top of its peer group.

MasterCard (MA) had an EBT margin of 49.77% in 2010 and 13.5% in 2009. Revenues grew by 8.64% to $5.5 billion, after only increasing by 2.15% in 2009. EPS shot up by 25.9% to $14.05, which implies a P/E of 17.7. The company expects its EPS to grow at a compound annual rate of over 20 percent for 2011 through 2013. The company also had a return on equity of 42.29% in 2010 and 53.86% in 2009. Mastercard is the world's second-largest credit and debit processing network.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.