Value Investing News - PFE - Comments

Where is the Value in WAMU?

Nick — Sun, 25 Nov 2007 12:07:20 -0500

I haven't looked too deeply into WAMU (WM) since last year but, I'd be shocked if you couldn't find a better Bank to be investing in. I posted this on Motley Fool CAPS last December and the only thing that has changed in my mind is a 50% reduction in price and I still don't see the value:

"[Washington Mutual has a] weak Home Mortgage portfolio and with the second stage of the housing crash just starting the foreclosures will start mounting up. That and a poorly executed expansion in retail banking will eat into its bottom line. Look out below. The only way this is on the way up is if its bought out." -12/22/06

Where do you see the value? Where do you see the value relative to other financials or banks? If you had to sum up their competitive advantage what would it be? This isn't an unregulated toll bridge where they can raise prices at will. Their advantage is "Free, Free, Free" would their customers leave if they raised prices? Is their cost of capital lower than other banks? I admit that their dividend yield and P/E are very attractive, but I bet with a little patience you could buy CITI or another Bank at a similarly attractive valuation. Buffett likes banks and he chooses to buy WFC, BAC, and USB. What do you see that he doesn't? Maybe the $15B market cap is too small for Buffett?

This year there will be many acquisitions and I do think that this could be a great play if they are bought out. I am very interested in your response. I'm not a fan of WAMU, but I might have missed something and I would hate to miss the 11% yield based on my bias. Let me know what you see.

Disclosure: I work for a bank and WAMU is a major competitor. Unfortunately I didn't short WAMU and have no position in their stock.

Re: McGraw-Hill

George — Sun, 25 Nov 2007 10:17:40 -0500

McGraw-Hill owns Standard & Poors. A large part of the Standard & Poors business involves debt rating. It's the same business as Moody's. Both companies face potential litigation as a result of generous ratings to blended debt securities (CDOs, etc.). The market for debt rating services has also slowed down.

On another note, there is ever increasing competition in indexes. It seems like someone is coming up with a new index every day.

Regardless of these factors, I still believe McGraw-Hill has a wide economic moat and will be producing excess profits for years to come. The real question is whether the stock now trades low enough to provide a significant margin of safety.

The thing that concerns me

Ryan McParlan — Sat, 24 Nov 2007 22:42:30 -0500

The thing that concerns me is why is Mcgraw-hill so sold off. Am i missing something? Are students not going to class any more?

Re: WAMU

George — Sat, 24 Nov 2007 18:31:32 -0500

I'm very sceptical that Washington Mutual has really changed the way banks do business. How have they made banking fun? The only fun aspect of their banking I've experienced is their expensive advertising campaigns. Good marketing does not constitute a change in the way banking works.

WAMU

Teenvestor — Sat, 24 Nov 2007 12:51:49 -0500

Washington Mutual is a great bank one that has changed the way banks do business by making banking fun.

It's a good comapny, management has been there for a while and it has fallen off a cliff recently, the other banks you mentioned may be great companies but I don't know how undervalued they are, banks usually have low PEs.

This is a contrarian play, buying at the height of fear in the company, Morningstar says its value is $51 and it's trading for $18.

I used to own PFE at a very

Nick — Sun, 29 Jul 2007 11:07:48 -0400

I used to own PFE at a very similar cost basis George, but patience and the threat of generics got the best of me.

It seems like a good buy but

Mark Perkins — Sun, 29 Jul 2007 00:29:20 -0400

It seems like a good buy but not being an expert on drugs I can't predict who's drugs are going to be successful in the future and what profits PFE will have. I can't have confidence in the pipeline. I have the same uncertainty with tech though drug companies have monopoly prices after all the capex : )

I'm glad to know I'm not the

George — Sat, 28 Jul 2007 22:50:16 -0400

I'm glad to know I'm not the only value investor that owns Pfizer. I got in PFE at $24.85. That's even lower than Irving Kahn's entry point according to the article.

Yeah I Like These Kinds of Stories

Geoff — Thu, 08 Mar 2007 15:14:05 -0500

Sometimes it's worth taking a longer view of industries. The economics of certain industries are just so different - it's something investors need to learn.

You can't outrun the mistakes of your dumbest competitor, just ask the airlines. The propsects of tremendous growth and hitting it big sometimes lead to capital being pushed into industries that (from a business perspective) already have more than enough.

Of course, everyone outside the industry gets to benefit from it. We've all benefited from profitless airlines. As I write this I'm benefiting from all the money that's been poured into the telecom area. It used to be you had to pay very high monthly fees for dial-up internet access. Now, I have high speed access for less than $0 when you consider my phone, cable, and internet together cost me much less than they did separately. For this, I have the fierce competition between Verizon, Cablevision, etc. to thank.

Of course, my hometown used to be filled with thousands of AT&T employees (it was the world HQ) - and they're all gone.

Competition is a funny thing. And growth is an even funnier thing. Investors chase the prospect even when (like in these situations) it hasn't been all that profitable in the aggregate.

I'm glad this one got refreshed.

Nick — Thu, 08 Mar 2007 14:31:53 -0500

"Consider the following observation; from the year 1975 through 2004 the biotech industry as a whole has seen an increasing trend in sales, but total operating income before depreciation is essentially zero."

-Wow! I wouldn't have guessed that...

"So not only is big pharma more efficient at producing and selling, but the gap is increasing, not narrowing. There is no evidence that the biotech industry is learning."

...or this. Then again, I live in the biotech capital of the world. Or so it seems.

You're welcome!

George — Tue, 19 Dec 2006 11:56:20 -0500

You're welcome!

A compliment

GCD — Tue, 19 Dec 2006 06:11:48 -0500

Good thinking and work here. I agree that 5% is too conservative for a ten year growth rate.Using my Dividend Valuation Model I get a "fair value" of low to mid 30s. Now PFE yields 4.5%. Not bad payment to sit and wait for things to change. Thanks for your piece.

Thanks! Just a little bonne

StockReply — Fri, 24 Nov 2006 10:51:25 -0500

Thanks! Just a little bonne bouche for Thanksgiving.

StockReply
http://stockreply.blogspot.com/

Very entertaining

Jason — Wed, 22 Nov 2006 14:55:13 -0500

Hah, very entertaining. Not sure how it pertains to value, but interesting nonetheless.