Value Investing News - OSTK - 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.

Thanks

Geoff — Mon, 13 Nov 2006 19:05:53 -0500

I'm really happy with this week's festival. It's a good group. I think you'll enjoy it.

Great FoS

Jason — Mon, 13 Nov 2006 15:44:14 -0500

Nice collaboration Geoff. I look forward to the lite reading this evening.

No moat at Overstock

George — Mon, 06 Nov 2006 22:53:09 -0500

The basic problem with Overstock is that it has no moat and way too much smart competition.

Overstock Underdelivers Again

Jason — Mon, 06 Nov 2006 22:47:47 -0500

George,

In related musings, the Fool writes Overstock Underdelivers Again.

Looks like they are making a habit of under performing.