Weekly Bargain Bin Blue Chips Update Q2 Week 11176 views 2012-06-16 12:16 Tags: blue chip dividend bargain bin
Blue chip stock (my def.) = minimum market cap 1B + minimum 10 continuous years of dividends.
Market Price = Book Value + Premium for future growth.
The Dow closed at 12,767.17 today, up +1.70% from last Friday's close. The DJI is now up +92.66% from its 5-year low on March 6, 2009 and down -4.28% from its recent high of 13,338.66 on May 1.
The Dow goes up, the Dow goes down. Every once in a while the Dow goes way down. That my friend, is what I am waiting for. In the meantime, I hope Nokia doesn't go bankrupt. My shares, even though I bought at cheap prices, are still underwater 51%. Now I know what it feels like to be an American home-owner. LOL?
From what I know of blue chip stocks, Nokia will be just fine. Sure their business will be sluggish as they attempt a major turnaround, but their partnership with Microsoft is precisely the kind of arrangement they were able to do because they are a first-class company with the years of experience and history of being #1 in phones for over a decade. However I am a realist; the fact is their stock is likely to go much lower, say closer to a dollar per share on the NYSE. The crazy part is, I am almost finished buying shares of NOK. Maybe one more purchase of 500 shares at $1.50 and then I am out of bullets for this particular target.
I was laughing this week when W.B. stated that while European banks are in trouble, U.S. banks are in fine shape. While I'm no expert, the price-to-book ratios of the major American banks look pretty close to their European counterparts - with the exception of Wells Fargo which is still trading for a premium of 33% over book value - meanwhile... BAC P/B = 0.39, JPM P/B = 0.75, C P/B = 0.47, GS P/B = 0.69, MS P/B = 0.46. It is my guess that W.B. has confidence based on two things: the U.S. dollar as world reserve currency and the Federal Reserve as America's vast reserves of monetary stimulus should they need it. Fair enough.
A few changes to the list this week. I have decided to tack on P/E ratio and 5-year low/high figures. As I have said before, I use the BAR formula to calculate how to value stocks. BAR = Book value, Average price & P/E Ratio. Undervalued blue chip stocks trade below book value, are near their 5-year low share price and have a P/E under 10 or close to it (although P/B and P/E ranges differ across industries, have to take this into consideration).
Below are the seven bargain bin'ners and twenty-nine near-bargain-bin stocks from my list of blue chips.
The following blue chip stocks deserve honorable mention for their proximity to 0.5X book value.