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:
- Apple
- MGM
- Coca-Cola
- Visa
- 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:
- Visa
- Coca-Cola
- Apple
- JPMorgan Chase
- 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:
- Coca-Cola
- Apple
- Visa
- JPMorgan Chase
- 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:
- Apple
- Visa
- Coca-Cola
- JPMorgan
- 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:
- Coca-Cola
- JPMorgan Chase
- Visa
- Apple
- 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.
