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Roundtable: Rank These Stocks

The task today is simple: I throw out five stocks, and my fellow analysts and I rank 'em. No cop-outs allowed!

The stocks: Coca-Cola (NYSE: KO  ) , JPMorgan (NYSE: JPM  ) , Apple (Nasdaq: AAPL  ) , Visa (NYSE: V  ) , MGM (NYSE: MGM  )

Let's get to it.

Rick Munarriz, Fool contributor and Rule Breakers analyst:

  1. Apple
  2. MGM
  3. Coca-Cola
  4. Visa
  5. JPMorgan

I like to run a three-year test on companies. I try to visualize where they will be in three years. Under that scenario, it's easy to see why I have Apple, MGM, and Coca-Cola ranked higher than the financial services companies.

Apple should have a larger installed base of iPhone, iPads, Macs, and whatever else they're selling come 2013. Coca-Cola does pose health risks, but emerging markets with growing levels of disposable income will translate into a fizzier planet.

Visa is one of the better financial juggernauts given its ability to market cards without taking on the credit risk, but I'm not convinced that all cashless roads lead to plastic. The steady success of eBay's (Nasdaq: EBAY  ) PayPal proves that there is more than one way to swipe a cat, so the future should be a competitive one.

Alex Dumortier, CFA, Fool contributor:

  1. Visa
  2. Coca-Cola
  3. Apple
  4. JPMorgan Chase
  5. MGM

As a value investor, I favor simple businesses that have a durable competitive advantage and little debt. Of the five companies, Visa and Coca-Cola match those characteristics best. I'm giving the nod to Visa, though, since the stocks' valuations are fairly similar (15.0 times estimated 2011 earnings-per-share for Visa vs. 13.7 times for Coca-Cola), but Visa should achieve substantially higher earnings growth. Despite some uncertainty regarding the potential impact of financial regulatory reform on payment processing companies, 15 times next year's earnings looks pretty compelling for such a high-quality business.

On paper, JPMorgan Chase looks very cheap at 7.6 times 2011 earnings-per-share, but I can't get comfortable with owning large financials at this time between regulatory reform and a financial system that is still brimming with risks (Credit where it's due, though: JPMorgan Chase looks relatively safer than its peers among the top 5 banks).

Anand Chokkavelu, CFA, Fool editor:

  1. Coca-Cola
  2. Apple
  3. Visa
  4. JPMorgan Chase
  5. MGM

Because I'm not fall-out-of-my-chair enthusiastic about the valuations of the other four, I'm going with the stable, boring, fairly priced Coca-Cola as my top stock.

Apple and Visa are sexy stocks that I'd be attracted to at cheaper prices. Yet, I refuse to pay too much of a premium for Apple's growth because that growth will get harder and harder the larger it grows – and it's already one of the largest American stocks; I refuse to pay too much of a premium for Visa, either, because of the regulatory and competitor (PayPal et al) threats to its moat.

Rather than endorse the black box that is JPMorgan, I'm more bullish on finding value in smaller banks since they're more easily understood and less followed. As for MGM, its debt, lack of profitability, and the timing of its CityCenter opening during tough economic times make it an expensive gamble.

Tim Beyers, Fool contributor and Rule Breakers analyst:

  1. Apple
  2. Visa
  3. Coca-Cola
  4. JPMorgan
  5. MGM

First, I don't believe in national banks right now. Too much federal stimulus has allowed these institutions to grow unsustainably, though, like Alex, I'll admit that JPMorgan Chase appears to be in a better position than most.

Casinos aren't in much better shape. MGM is a good yet debt-ridden franchise; so much is out of management's control that I'm not sure the risk-reward equation works at these levels.

Conversely, I like the businesses that either have no debt (i.e., Apple), profit from debt (i.e., Visa), or have the ability to produce returns regardless of debt (i.e., Coca-Cola and its sugary dividend). But of all these I like Apple most because the iPad and iPhone are transforming this company from regional power to global superpower. I'm expecting at least three more years of market-beating returns.

Matt Koppenheffer, Fool contributor:

  1. Coca-Cola
  2. JPMorgan Chase
  3. Visa
  4. Apple
  5. MGM

The top spot is easy, particularly since I own it myself. Will Coke deliver massive returns in the years ahead? Probably not. However, the company is stable, has a wide moat, and its stock currently yields 3.4%. There's nothing overly exciting about Coke, but at the current price, the stock is definitely a reasonable investment.

JPMorgan makes the next spot on the list primarily because I think fears over financial regulation are overblown. Simply, I think our government is going to screw up what could have been a huge step toward making the financial system safer. As a result, JPMorgan and its ilk will likely end up as profitable as ever.

Visa and Apple were a toss-up because I like both businesses, but I'm not crazy about either stock's valuation. Why did Visa get the edge? Because though its dividend is a pittance, it's at least shown the inclination to kick profits back to shareholders, which is something Apple has refused to do.

And finally, there was a time when I liked MGM on the basis of valuation, but now that its stock has recovered significantly I'm not nearly as crazy about it. Both Las Vegas Sands (NYSE: LVS  ) and Wynn are significantly pricier than MGM, but I like both better than MGM due to better businesses and geographic footprints.

Keeping to our motley reputation, we all differ in our relative rankings of these stocks. Justify your rankings in the comments section below. Then check out our thoughts on the best dividend play.

Coca-Cola is a Motley Fool Inside Value selection. Apple and eBay are Motley Fool Stock Advisor picks. Coca-Cola is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a bull call spread position on eBay. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletters today, free for 30 days.

This roundtable article was compiled by Anand Chokkavelu, who owns shares of Microsoft. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 18, 2010, at 3:14 PM, Patricia013 wrote:

    I see you guys are still dragging around the dead fish Ebay because of its evil daughter Paypal. Both are a joke and time will show it!

  • Report this Comment On June 18, 2010, at 6:04 PM, lowmaple wrote:

    apple has a huge cash stockpile which if used correctly could easily increase shareholder value substantially

  • Report this Comment On June 19, 2010, at 12:50 AM, pinestholdings wrote:

    This article is worthless. JPM at $1/share is better than all of them. A discussion of "who is the better company" is as useful as "who has the best looking corporate headquarters".

    Ranking companies is easy. Picking good values or companies that can grow at the offered price (all that matters in the market) is much harder. Without discussion of investment cost, this article is worthless.

  • Report this Comment On June 19, 2010, at 3:33 PM, TMFMileHigh wrote:


    Thanks for writing.

    >>JPM at $1/share is better than all of them.

    Ah, the irony. Arguing value by pointing to share price is, to use your own word, worthless.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On June 20, 2010, at 4:15 AM, pinestholdings wrote:

    Of course, price on its own is worthless also. thats my point. Talking about values of companies without cost doesn't help anyone invest. The point of my comment is that without a discussion of price of investment, all the rest of just wind.

  • Report this Comment On June 21, 2010, at 3:05 PM, AaronRogers wrote:

    Apple is at a brick wall. The market value, fundamentals and growth no longer allow for Apple's share price to grow more than the other companies listed except maybe MGM. Look what happened to Microsoft. Apple doesn't have the value or cash to justify and not enough products to substantiate large growth going forward. There is no moat in the world of gadgets. When the growth rate slows just a hair the P/E multiple willing to be paid goes with it. Great run and a great company with more upside for sure. JPM will not fall to congress they will figure out a way to profit from the regulations. That's what these investments banks do. Negativity creates opportunity. As the world moves to cash less Visa prospers. Coke is Coke. Slow and steady with no pitfalls. You can buy coke where you can't find water!

    1) JPM

    2) Visa

    3) Coke

    4) Apple

    5) MGM

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