In case you missed it, Morgan Stanley will be officially spinning off Discover in the near future. If you were lucky enough, you may have owned Morgan Stanley (MS) stock by closed today, in which you were rewarded with a share of Discover for each two shares of MS you owned.
Unfortunately, if you don't own any shares of Morgan Stanley, the likelihood of obtaining Discover shares before they hit the open market are slim to none. However, there still remains a plethora of money to be made on both stocks. Recently, Mastercard (MA) reached highs in the $160/share range after issuing its IPO around $45/sh. Although Discover may be priced at a higher premium do to the foreseeable or comparable demand, it likely will enter the NYSE undervalued and be an immediate speculative and euphoria play. Holding Discover for a longer time frame may not be a bad idea either. American Express (AXP) was issued back in the late 1970s around a mere $3. Since, the company stock is valued over $60/share, splitting four times along the way.
Discover has always been emulated because of their innovative ideas for the credit card industry, most notably its cash back rewards program. After Discover and American Express won a landmark case allowing issuance of cards for rival companies, both up-and-coming credit card companies have been able to significantly increase their exposure to the marketplace and subsequently, the number of locations cards can be accepted at.
Discover is not the only strong stock play in this business deal. Morgan Stanley continues to show undervaluation, and like its competitors, MS is showing signs of blossoming soon. Recently, Lehman Bros. posted record profits and significant gains, boosting optimism for Wall Street's investment banks, especially those with limited exposure to the housing (specifically, sub-prime) sector such as MS. Unlike the top-rated investment bank on Wall Street, Goldman Sachs (GS), Morgan Stanley's stock price has yet to experience excessive gains, rendering many to expect a price catch-up shortly. Historically, GS and MS moved simultaneously, but in the past couple years, GS has realized far superior gains.
Monday, June 18, 2007
Monday, June 11, 2007
Jacobs Engineering IS Globalization
If you are like many U.S. investors, you are worried about the slowing US growth relative to the global economy. Also similar to most American stock market participants, you fear the risks of investing abroad. One of the perfect solutions is to invest in Jacobs (JEC), a diversified construction, engineering, and architectural group based in Pasadena, CA.
Jacobs Engineering operates within the following sectors: Aerospace & Defense, Automotive & Industrial, Construction (buildings), Chemicals & Basic Resources, Consumer & Forest Products, Infrastructure, Environmental, Oil & Gas (includes refining), Pharma & Biotech, and Ttechnology.
Jacobs also has created markets in the US, Canada, Australia, China, India, Spain, U.K. and various other European countries.
Diversification is an essential part of anyone's portfolio. Conglomerates like Altria Group, Berkshire Hathaway or General Electric are certainly one way to achieve it. But, in order to fully realize the benefits being made abroad, JE could end up being a better play. In order to sustain growth and continue developing, Europe, India and China have been forced to begin with basics such as infrastructure, construction and energy, all of which Jacobs possesses expertise and solutions. As you see these countries become more developed, Jacobs will leverage their solid relationships and credibility in the region to generate new business in other sectors and industries such as Pharma & Biotech, Technology, Industrial, Environmental Programs, and Consumer products.
Instead of attempting to pour money into risky, foreign stocks, Jacobs provides solid American management along with global growth and market exploration and penetration. According to Yahoo! Finance, Jacobs accounting and reporting is in the top 10 percentile in governance, signifying a lower potential risk of financial problems.
Valuation-wise, Jacobs trades at 25x earnings, slightly under the industry average. Additionally, double-digit growth is expected to continue, providing a steady long-term outlook with little volatility.
If you lack diversification, Jacobs fits perfectly in your portfolio.
Jacobs Engineering operates within the following sectors: Aerospace & Defense, Automotive & Industrial, Construction (buildings), Chemicals & Basic Resources, Consumer & Forest Products, Infrastructure, Environmental, Oil & Gas (includes refining), Pharma & Biotech, and Ttechnology.
Jacobs also has created markets in the US, Canada, Australia, China, India, Spain, U.K. and various other European countries.
Diversification is an essential part of anyone's portfolio. Conglomerates like Altria Group, Berkshire Hathaway or General Electric are certainly one way to achieve it. But, in order to fully realize the benefits being made abroad, JE could end up being a better play. In order to sustain growth and continue developing, Europe, India and China have been forced to begin with basics such as infrastructure, construction and energy, all of which Jacobs possesses expertise and solutions. As you see these countries become more developed, Jacobs will leverage their solid relationships and credibility in the region to generate new business in other sectors and industries such as Pharma & Biotech, Technology, Industrial, Environmental Programs, and Consumer products.
Instead of attempting to pour money into risky, foreign stocks, Jacobs provides solid American management along with global growth and market exploration and penetration. According to Yahoo! Finance, Jacobs accounting and reporting is in the top 10 percentile in governance, signifying a lower potential risk of financial problems.
Valuation-wise, Jacobs trades at 25x earnings, slightly under the industry average. Additionally, double-digit growth is expected to continue, providing a steady long-term outlook with little volatility.
If you lack diversification, Jacobs fits perfectly in your portfolio.
Tuesday, May 29, 2007
Steer clear of Dell
Dell (DELL) computers were a staple of the late 1990s and early 2000s. Michael Dell's business model transformed the company into a technology sector powerhouse by providing consumers with the best value or "bang for the buck". However, Dell struggled without its founder as its revenue and earnings continue to decline against fierce competition from HP, Toshiba, Sony and Acer. Despite Michael Dell's return to help revive the company, Dell won't be a good investment for some time.
Recently, Dell has been labeled as deliquent in its regulatory firings. Generally speaking, this type of action serves as a red flag, warning investors that more tough times are ahead in the near future. Another newsworthy item involves Dell's recent strategic alliance with Wal-Mart. Two low-cost providers teaming up seems like a well-designed match, but this partnership may actually hurt Dell.
Wal-Mart is known for poor customer service, something Dell already struggles with. By selling products in Wal-Mart, Dell expects consumers to be knowledgable enough not to need help. The problem here lies with Wal-Mart's target market, low and middle-class consumers who do not possess the computer skills and know-how required to purchase PCs or other computer equipment on their own. Additionally, Dell's perception and brand value will decline significantly due to this alliance. Higher-end consumers may link the company with lower-class America, discouraging high-end product purchasing.
A better play would be HP (HPQ), a company that continues to improve marketshare in the PC market and seems to have positioned itself well for the laptop battle. HP's valuation is still undervalued with Price/Sales ratio, Price/Book ratio, Price/Free Cash Flow ratio, and P/E over Long-Term growth all below the industry and sector average. Considered a buy according to most wall street analysts, HP was recently named to TheStreet.com's 5 best value plays.
Recently, Dell has been labeled as deliquent in its regulatory firings. Generally speaking, this type of action serves as a red flag, warning investors that more tough times are ahead in the near future. Another newsworthy item involves Dell's recent strategic alliance with Wal-Mart. Two low-cost providers teaming up seems like a well-designed match, but this partnership may actually hurt Dell.
Wal-Mart is known for poor customer service, something Dell already struggles with. By selling products in Wal-Mart, Dell expects consumers to be knowledgable enough not to need help. The problem here lies with Wal-Mart's target market, low and middle-class consumers who do not possess the computer skills and know-how required to purchase PCs or other computer equipment on their own. Additionally, Dell's perception and brand value will decline significantly due to this alliance. Higher-end consumers may link the company with lower-class America, discouraging high-end product purchasing.
A better play would be HP (HPQ), a company that continues to improve marketshare in the PC market and seems to have positioned itself well for the laptop battle. HP's valuation is still undervalued with Price/Sales ratio, Price/Book ratio, Price/Free Cash Flow ratio, and P/E over Long-Term growth all below the industry and sector average. Considered a buy according to most wall street analysts, HP was recently named to TheStreet.com's 5 best value plays.
Friday, May 25, 2007
Stocks to combat energy price inflation
As my financial blog points out, investors can benefit from the recent rise in gasoline prices. Here are some stocks to consider if you want to hedge against these prices:
PetroChina (PTR) - With now less then 1% owned by Warren Buffet's Berkshire Hathaway (due mainly to increased purchasing), PetroChina remains an appealing play in the energy sector. Despite the doubling of its stock price over the past two years, PetroChina remains undervalued by most measures including a P/E over LT Growth of under 1. Despite earnings declines this past quarter, improvements in margins and consistently high ROE and ROA make this a solid play. Taking into account the estimate growth in fuel demand in China and developing Asia, PetroChina figures to remain one of the top players providing oil and gas for the region.
Valero Energy (VLO) - A large-cap refining, marketing and distribution play that remains drastically undervalued despite a YTD increase of 25 points in the price. Despite weaker sales numbers last quarter, the earnings grew by some 35%. Sales typically improve during the summer months and earnings will continue to grow because of the widening spread between crude oil and gasoline prices. As refined gasoline continues to push upward, crude prices have steadied throughout much of the year aiding in the maximization of refiners profits.
Marathon Oil (MRO) - This is the best diversified energy play because Marathon is actively engaged in exploration and drilling, refining and distribution. If you want to hold one stock with the least exposure to market fluctuations, this is your stock. Reasonably valued with lots of stock growth left, it trades at just under 11x earnings while possessing solid debt ratios.
Other stocks to consider are Petroleo Brasileiro (PBR), the largest Brazilian energy company which possesses good valuation and growth potential, and Transocean (RIG), another major driller and oil exploration with outstanding valuation, a healthy balance sheet, and impressive revenue and earnings growth.
PetroChina (PTR) - With now less then 1% owned by Warren Buffet's Berkshire Hathaway (due mainly to increased purchasing), PetroChina remains an appealing play in the energy sector. Despite the doubling of its stock price over the past two years, PetroChina remains undervalued by most measures including a P/E over LT Growth of under 1. Despite earnings declines this past quarter, improvements in margins and consistently high ROE and ROA make this a solid play. Taking into account the estimate growth in fuel demand in China and developing Asia, PetroChina figures to remain one of the top players providing oil and gas for the region.
Valero Energy (VLO) - A large-cap refining, marketing and distribution play that remains drastically undervalued despite a YTD increase of 25 points in the price. Despite weaker sales numbers last quarter, the earnings grew by some 35%. Sales typically improve during the summer months and earnings will continue to grow because of the widening spread between crude oil and gasoline prices. As refined gasoline continues to push upward, crude prices have steadied throughout much of the year aiding in the maximization of refiners profits.
Marathon Oil (MRO) - This is the best diversified energy play because Marathon is actively engaged in exploration and drilling, refining and distribution. If you want to hold one stock with the least exposure to market fluctuations, this is your stock. Reasonably valued with lots of stock growth left, it trades at just under 11x earnings while possessing solid debt ratios.
Other stocks to consider are Petroleo Brasileiro (PBR), the largest Brazilian energy company which possesses good valuation and growth potential, and Transocean (RIG), another major driller and oil exploration with outstanding valuation, a healthy balance sheet, and impressive revenue and earnings growth.
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