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PriceSmart is an interesting company that I’ve been following for awhile. They are known as the Costco of Latin America and hit a new 52 week high today. Normally I like to stay away from the 52 week high list, but this is one that is worth watching. It’s not really a value name right now, with a P/E in the mid-20’s, but it is growing revenue and earnings at nearly 30% per year and it has a lot of room to expand, which I think doesn’t make it unreasonably expensive. I’m afraid the higher valuation is the reason I haven’t pulled the trigger. Their San Diego-based management is strong, and with a market cap under $2 billion and a lot of geography to grow into, PriceSmart could be growing for quite awhile. Hopefully they’ll stumble for a quarter or two so the valuation comes down to a level where in which I’m more comfortable.
The Wall Street Journal is reporting that Berkshire Hathaway is in the hunt to purchase Citigroup’s consumer lending division. This business, now called OneMain Financial, used to be the old CitiFinancial. It sounds like Buffett may be interested here because of Leucadia National. Leucadia and Centerbridge Partners are approaching this as a team for this potential $8 billion transaction. The interesting thing here is that through Berkshire’s businesses, Buffett has a unique window into the health of borrowers. If he’s bullish about the reduction in loan defaults, especially among lower income borrowers as would be the case with this deal, then that bodes well for the economy.
Last week we talked about the debit card fees capped at a much higher rate than was expected. Today, Moody’s said that the change from the original proposal will save banks $3.5 billion per year. The fee will be capped between 21 and 24 cents from the original 12 cents. The average fee is now 44 cents. Banks will have to make that revenue up elsewhere, and in many cases already are by charging higher interest rates, reducing free checking accounts, and tacking on other fees. All things being equal, I think this whole episode will actually costs lower income Americans more money. Perhaps someone cane do a comprehensive study of the kind that Jamie Dimon would like?
Okay, let’s take a few stabs at overall market valuations. Jacob Wolinsky at valuewalk.com has his views out for the week and things are looking a bit overvalued. Chuck Carnevale thinks we’re fairly valued and has a year end S&P 500 target at 1,467. Carnevale uses an earnings yield model compared to a typical bond yield. With interest rates so low, it can be argued that P/E’s should be higher, even significantly so. That’s what Larry Fink and James Altucher have been saying. Calafia Beach Pundit has some good thoughts on the subject as well saying we're not overvalued right now. Thanks to Todd Sullivan for providing the link on Twitter.
Disclosure: Long BRK.B
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