Banking Buys?

Banks are scary at the moment but possibly a good value play. The scary thing about banks? These SIV instruments which are orchestrated to get risky debt off of their balance sheet. The question you need to ask yourself at this moment is whether or not the write-downs were sufficient to handle the expected losses.
If so and if you find the estimates for FY 2008 to be conservative enough, there's a lot of value to be had in a bank pickup at the moment.

My initial impressions of JPM and BAC are that they are value steals. JPM is currently trading at a P/E of roughly 10 in an industry that typically trades at a P/E of 17. Assuming a P/E constant, the mean estimates would place the stock at an intrinsic value of $54.67 (it is currently trading at $45.05). In reality, the P/E will come in line with historical trend. Estimating a P/E of 14 (still conservative), I see a price target of $74.55 (65% margin of safety). That's conservative enough of an estimate for me to take to the bank.

I see the worst case, a misestimate on the annual earnings by conservative analysts of 20% difference as a break even number on the current P/E and still holding upside at a normal P/E. If the estimates are too conservative I could easily see a 100% appreciation over the next 12 months. Bank of America has slightly less but still moderate upside.

Is Google Overpriced?

You know, if you would've asked me when Google was selling at $423 whether or not the stock was overpriced I would have said yes. Does that make me a fool? Perhaps - but a conservative fool.

I view Google's rise as primarily a matter of the "greater fool theory" in practice. Google will eventually miss expectations. There will be a natural slowdown, its weight will catch up with it and momentum will begin to reverse. Is that to say I don't like the company? No, far from, however if history teaches anything it is that no growth company can grow forever. There is no immunity card that protects you from the inevitable business cycle.

Most importantly, I don't want to be the person unfortunate enough to not have a "greater fool" to rescue me from that bad decision. I don't view Google as speculation at this point, I view it as placing a bet on how long the irrational optimism can last. Equally I wouldn't short it either, its just too dangerous of a stock to associate with at the moment because it has fled the realm of fair value.

Interestingly enough though, its not the most overly optimistic choice in the search engine industry. Both Yahoo and Baidu are even more dangerously overvalued. Baidu is currently trading at a P/E of 187, with a forward P/E of 57. In other words, it has the next decade of astronimical growth already priced into it.

Does that mean Baidu or Yahoo or Google are going to deflate tomorrow? Probably not but its a certainty that they will over a long enough period of time and I'm not going to be caught holding one when they do.

More Efficient Market Hypothesis Debunking

On the words of the CEO of Caterpillar, Inc. and with the 20 year anniversary of the crash of 1987 the market decided to take a nose-dive on Friday. What's the exact opposite term for "irrational exuberance" I wonder?

While there's a lot of uncertainty about the future there is an abundance of certainty that this latest sell-off was irrational panic. Oil prices are at dangerous levels but ultimately this isn't a correction related to oil prices. After a terrible market week this is an ideal time to rebalance my cash position.

ASFI - Asta Funding, Inc.

The silly sell-off on Friday prompted me to relieve my portfolio of some of its cash and see if I could pick up some bargains. I've been eying ASFI for quite a while but hadn't gotten around to doing a formal analysis and price target for the stock. I'm bullish on credit collection as a whole in light of expanding consumer debt. ASFI has kept their debt in check and has ample access to credit to take advantage of future declining debt prices. Furthermore they've maintained their margins and have a good solid history of stability and profitability. Insider ownership and institutional ownership are both favorable as well.

My target price for this stock is $44-$48 (it's currently trading at $33.78) and I view that as conservative (I used consensus estimates for FY EPS with a small P/E adjustment to bring it in line with the industry). I see this as a welcome hedge against future economic downswing as well, which makes it a perfect fit for my portfolio.

Yahoo - Dealer of Communism

Google fights dirty! We can all see why Yahoo hasn't faired so well. Is this just bad programming or a calculated smear campaign?



I'll leave it up to you to decide.