Of all the insight I've heard over these crazy months, the most telling came from an investor who appeared on CNBC last fall and, being entirely serious, advised, "There're only two positions to be in right now: cash, and fetal."
I get it. Even with the recent rally, the economy remains wrapped in failure. Big failure. Many companies that overleveraged their balance sheets are permanently impaired and will never fully rebound. We had an unprecedented boom; now we're crawling out of an unprecedented bust. That's how markets work.
Even so, history tells us time and time again that the good gets thrown out with the bad in times like these. Using the wisdom of our 140,000-member-strong CAPS community, I've hunted down a few dirt cheap, high-quality companies. Have a look:
|
Company |
Recent Share Price |
Forward P/E Ratio |
5-Year Expected Growth Rate |
Return on Equity (TTM) |
Dividend Yield |
CAPS Rating |
|---|---|---|---|---|---|---|
|
Berkshire Hathaway
|
$101,530 (A share) |
18.62 |
5.00% |
2.52% |
N/A |
***** |
|
Verizon
|
$29.10 |
11.64 |
4.65% |
11.77% |
6.5% |
**** |
|
Consolidated Edison
|
$40.95 |
12.41 |
3.40% |
6.92% |
5.7% |
***** |
Data from Yahoo! Finance and Motley Fool CAPS, as of Nov. 4. TTM = trailing 12 months.
Let's break down the bullish argument for each one.
A closer look at Berkshire Hathaway
"I want Warren to Have my Babies" read a fan's sign at last year's Berkshire Hathaway shareholder meeting. The mechanics of how this would work has always made me curious, but you get the point: People don't admire Buffett; they worship him. He isn't Berkshire Hathaway's CEO; he is Berkshire Hathaway.
And that scares investors when pondering the mortality of this septuagenarian. He's an old man, you know, and he won't be around forever. And when he passes, thought goes, so will the success of Berkshire Hathaway.
Color me skeptical. This week's purchase of rail giant Burlington Northern (NYSE:BNI) reiterates an important point: Berkshire isn't just a collection of stocks bought and sold based on Buffett's wisdom. It's a collection of entire, wholly owned businesses managed outside Buffett's watch. None of these businesses will lose a shred of their competitive advantage when Buffett passes on. As CAPS member athenamike writes:
Warren Buffett and his managers are master allocators of capital, and this will translate into solid returns for years to come (with or without Mr. Buffett). I think normalized, pass-through earnings of Berkshire will be around $373 per B share over the next 12 months and can most likely grow at around 12.5% per year for the next few years. That should provide good returns from a very high quality company.
A closer look at Verizon
I don't know if Verizon has the best 3G network. I don't know if it'll ink a deal with Apple (NASDAQ:AAPL). I don't know if huge growth is around the corner. Neither do you, for that matter.
What I do know is that interest rates are at zero, money market accounts are a joke, and the Federal Reserve is hellbent on keeping it that way for as long as it can. That's why there's wisdom in CAPS member mrdl's simple thesis, writing: "Where to put your money with CD rated so low? [Verizon] is selling at a discount to market while providing 6.5% dividends... possible 5-20% appreciation, depending on the economy... what's not to like?" Ditto for AT&T (NYSE:T), which currently sports a 6.4% dividend.
A closer look at Consolidated Edison
Telecom ain't your thing? It's cool. You can do almost as well with a solid public utility like Consolidated Edison. Its current 5.7% yield is about all you should ask for in today's market, now that the easy money has been made after the epic rally since March.
And you know what's great about this dividend? It's been raised every single year, without fail, for the past 35 years. That's stability, folks. As CAPS member hal2025 writes, "The regulated Utilities have always been my best long term investments. They profit in good times and bad, gauranteed by the regulations they operate under. In return, shareholder's receive a solid dividend."
You take it from here
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