I promised last week that I would actually write a bull opinion on a stock rather than going around and ripping the social media space. So I’m gonna force my attention over to financial institutions and recommend a buy. Beware: most of my posts are written as a result of something I see in the market. This time, however, I’m writing because I want to be bullish on something.
I was tempted to do something in Europe but given the turmoil and uncertainty, I could not think of anything I’d actually recommend.
So how about Bank of New York Mellon? It’s great asset manager that has gone through a lot of M&A, acquiring asset managers around the world. This does two things: it diversifies their holdings and gives them increased economies of scale. Given that it is in an industry that is going through much consolidation, worldwide research and economies of scale is a good thing. Add to that a wide economic moat and its an attractive company.
So how are the stats? At 21.44 it’s trading at 3/4 book value of 28.51 (ttm). Compared to the S&P 500 it’s trading below PE, Price/Sales, and Price/CF ratio averages also. Therefore, it’s a pretty cheap stock with regard to those metrics.
As I mentioned before, the company has done a large number of acquisitions lately but is not planning any future acquisitions. I believe this will give the company some opportunities to grow organically as these acquisitions settle into place.
Overall, it looks to be a great stock. While it is an “asset manager”, it also is a custodian for a number of funds, giving it the ability to collect fees at low risk, unless something like financial crisis of 2008 happens again and banks start refusing trades from people. But I don’t see that happening any time soon.
As I mentioned before, I took Level 1 of the CFA exam on 2 June 2012. What I did not mention was that I lost my exam ticket during lunch after the morning session. I think it blew away in the wind and into a drain. Ouch.
For those of you that don’t know, taking the CFA exam is a highly regulated procedure. They clear your calculators upon entry. You can only check in with a valid passport, not with a drivers license. You can only bring certain things onto the testing floor.
So, when I lost my exam ticket, I freaked out. The reason I’m writing this post is for any future CFA takers have some sort of protocol for what to do in my situation.
First of all, try as hard as possible to do whatever you can to find your exam ticket.
If that fails and you know its gone (like a dog ate it), get back to the testing center as soon as possible. Find out how you can get a handwritten ticket and who you need to talk to. I mention get back as soon as possible because those people are incredibly stressed out with the protocol they have to go through.
As soon as you found the person you need to talk to, fill out the information. The only thing you might need is your Candidate Number but if you’re like me, I had that memorized by that point already.
Before the afternoon session of the exam, I really wanted to grab a cup of coffee. To my benefit, after the whole mess with the exam ticket, my adrenaline was so high I didn’t really need it. I really don’t recommend this as a way to “wake up” after lunch as its stressful and no one needs that. Just go for the coffee.
I mentioned I’d talk about another social media stock NOT to buy. Very simple, it’s Linked In.
Before people start going off on me, let me get something straight. I love LinkedIn’s business model. It provides a great service, possibly more useful than Facebook. Also unlike Facebook, they have premium accounts which people in business will pay for (I’m thinking recruiters and people in HR). While it is not as social or developed as Facebook, it does provide some services and fills a gap that FB lacks.
On the flip side, it is trading at 600x earnings. Yeah. I know with regards to technology companies a lot of people say you have to through out the P/E ratio but when something is trading that high compared to earnings, you have to wonder whether its worth it. While FB is somewhere around 65-70x earnings, LI is 9 to 10 times that. Yikes.
I have this shirt given to me from Pink Sheets from when I was a market maker and used their product. On the back of it in big letters it says “CAVEAT EMPTOR.” So just a quick Latin lesson, it means “Buyer beware.” Here’s a fun cartoon about it found:
Now LinkedIn is a great company, just not at the prices its trading at. When the Price Earnings, Price Book, Price to sales, and Price to Cash Flow ratios are all out of this solar system, I stay away until it comes back to Earth. Still, it’s a company to watch.
I promise to write some things that are uplifting, particularly about something to actually BUY.
Image comes from:
The Bunny System
OK, so it has been awhile. I apologize, as I was gearing up for Level I of the CFA exam. Afterwards I was in New York visiting people and just got time to write a quick post… to say..
I WAS RIGHT
Back in February, I had estimated Facebook’s value to be about $25 a share. And I thought that was being generous. At the close on 14 June, the shares were at 28.29. I noticed a big drop occurred on the day that the options on Facebook started trading. While options prices derive from the price of the stock, I believe it also works the other way around.
If people start driving up the price of puts (the right to sell a stock at a certain price, think of it like an insurance premium you pay to get some value if your car gets in an accident or a tree lands on your house), then the value of the stock will go down. Likewise, if people crush the price of calls (the right to buy a stock at a certain price, or think of it like reverse insurance, like paying something so you can own a house at a reduced price if the cost soars for whatever reason), then the price of the stock will also go down.
There’s a reason why Warren Buffet doesn’t invest in technology stocks. And while Google and Apple may have crazy valuations. And while Google and Apple may seem sky high, at least they have some steady revenues and aren’t trading at 90x earnings.
Anyway, I mean to write some more posts, including one social media stock that I think is in more danger than Facebook and some global macro opinions. I also am thinking about writing a small opinion (treading carefully) on my CFA experience. I may write about my exam day experience and what I think about the level I material.