Today's roundtable question revisits the companies bailed out by the government, as we troll for the best bets of what's around.
The candidates include those that got straight cash -- including the TARP banks, Fannie Mae, and AIG
I asked a few of our top analysts:
Which company that has taken some form of government assistance is the best bet right now?
Morgan Housel: I'd start by asking which companies never really needed bailout money to begin with but unwillingly had it shoved down their throats. The best-known example of this is Wells Fargo
Now, I think all banks will struggle in the years ahead, mainly because of a glut of excess housing inventory that'll keep rocking credit markets. But if you're looking long term (and you should), Wells Fargo gets interesting because it typically has one of the industry's lowest costs of capital. Banking is essentially a commodity business, and in any commodity business, the low-cost producer always wins.
Alex Dumortier, CFA: I looked at a subset of companies that issued FDIC-backed debt (including the usual suspects) and added Fannie Mae, Freddie Mac, and AIG to the list -- 26 companies in all.
The best "bailed-out bet" stood out pretty clearly to me -- at least on the basis of a first pass. The largest U.S. life insurer, MetLife
MetLife shares trade at just one time their tangible book value and just 8.3 times this year's estimated earnings per share. The former is a 24% discount to the average price-to-tangible book value multiple over the past 9 3/4 years (1.35). Despite that, MetLife, established in 1868, remains a "franchise" company with leadership positions in group insurance, life insurance, and annuities. The company is currently in talks to acquire AIG's Japanese unit, Alico, which would add significant international revenues.
MetLife's slogan for many years was "The Light That Never Fails." Its stock may have dimmed during the credit crisis, but I believe the company has the candlepower to see it shine bright once again.
Russ Krull: My favorite bailout banks are Wells Fargo and JPMorgan Chase
With banks overvalued, the choices narrow and General Electric
There are still plenty of operating and balance sheet risks; those are somewhat offset by a broad business scope.
Matt Koppenheffer: Bank of New York Mellon
BoNY is quite different from the major banks such as Goldman Sachs
But the company is an absolute behemoth. At the end of the fourth quarter, the company had $1.1 trillion in assets under management and $22.3 trillion in assets under custody and administration. And yes, that's "trillion" with a "t."
Obviously, the bank isn't completely bulletproof -- it did take government assistance and reported a loss for 2009. But with a much more dependable business model than most major banks, I think BoNY outshines everyone else that chowed down on government cheese.
If you enjoyed this roundtable (and have already commented below), check out our last one: The Best Stock Out There.
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