This week has been one of the most volatile in recent market history. This created opportunites for investors to purchase shares in companies that are on their wish list. Legendary investor John Templeton said that investors should keep a wishlist of companies stocks that they want to own. This week, investors should have been pulling out that wish list and started purchasing those stocks. This is why investors like John Templeton and Warren Buffett (Trades, Portfolio) keep large cash reserves to purchase cheap stock when markets are tanking. I have a wish list of stock which includes IBM (IBM, Financial), Wells Fargo (WFC, Financial), JP Morgan (JPM, Financial), Goldman Sachs (GS, Financial), and Apple (AAPL, Financial). Every one of these companies fell massively earlier last week and you could have purchased shares on the cheap.
IBM data by GuruFocus.com
IBM is one of Berkshire Hathaway's largest equity holdings. Over the last few months, shares in IBM have fallen from $186 to its current price of $147. This has resulted in Berkshire Hathaway having a paper loss of over $700 million. Earlier in the week, IBM shares fell to $141 near its 52-week low of $140. You could have purchased shares for more than $20 less per share than Buffett did when he purchased his stake in IBM.
The company is highly profitable, producing over $17 billion dollars in operating earnings or $17.42 per share. Over the last few years, IBM has averaged $16.4 billion in operating earnings or $16.23 per share. When shares fell to $141, you could have purchased them for 8.2x its operating earnings and 8.6x its 10-year average operating earnings. If you do the inverse of price to operating earnings, you get a operating earnings yield between 12% and 11%.
Over the past few years, IBM's share count has declined from 1.68 billion to 1 billion, or a 40% reduction. This reduction in share count through IBM's share repurchase program is enough to boast EPS by at least 5% a year. Over the last 10 years, IBM EPS has grown by 14% annually; this means IBM's share repurchase program wasn't the driving force behind its increased EPS. Share deductions only account for 40% of EPS growth over the last 10 years. I believe that IBM is highly profitable and would have grown its earnings by at least 9% annually over the last 10 years without the share repurchase plan. IBM is a buy at its current price of $147 and shares are worth closer to $174.20 per share.
Science of Hitting wrote a article on IBM and it was very interesting. http://www.gurufocus.com/news/318865/ibm-the-numbers-dont-add-up
WFC data by GuruFocus.com
Wells Fargo is one of the most profitable and well-run banks in the world. Earlier last week, Wells Fargo saw its shares fall to $50, or $5 away from its 52-week low. The bank is one of Berkshire Hathway's largest equity holdings. Wells Fargo has been in Berkshire Hathaway's portfolio for over 20 years. The bank has a AA credit rating which was the result of the financial crisis. Before the finanacial crisis, Wells Fargo was the only U.S. bank to have a AAA credit rating. Wells Fargo produces operating earnings of $33.91 billion or $6.36 per share. The company has 10-year average operating earnings of $33.62 or $6.31 per share. Earlier this week, you could have purchased shares in Wells Fargo for 8x its operating earnings and 7.9x its 10-year average operating earnings. Even with shares rising to $53, Wells Fargo is undervalued and selling for at least a 10% discount to estimated business value. The bank should sell for at least 10x its operating earnings, which means shares would sell for $63.10. Investors could have purchased Wells Fargo with a 12.5% and 13% operating earnings yield earlier last week at $50. The discount from business value and market value isn't as large with Wells Fargo as with IBM.
JPM data by GuruFocus.com
Just like Wells Fargo, JP Morgan saw its shares fall along with the market early last week. Shares fell to $59 or $9 away from its 52-week low. JP Morgan is the largest U.S. bank in the world with $2.4 trillion in assets. The firm is run very efficiently by CEO Jamie Dimon and his management team. The bank produced $29.79 billion in operating earnings or $7.86 per share, and $30.55 billion in 10-year average operating earnings or $8.04 per share. Earlier last week, investors could have purchased shares in JP Morgan for 7.8x operating earnings at $59 per share. The bank was also selling for 7.3x its 10-year average operating earnings.
In that last three investors presentations, Dimon has shown how JP Morgan's earnings are compressed by the lack of interest rates. He is the only bank CEO showing shareholders how the lack of interest rates are compressing JP Morgan earnings. If the Fed starts normalizing interest rates, JP Morgan will see earnings of $29 billion or $7 per share by 2017 after deducting preferred dividends and other expenses. The increase in interest rates would result in operating earnings increasing to $32 billion by 2017 or $8.44 per share. Currently, JP Morgan is undervalued and investors should have loaded up on shares when they fell to $59 per share.
Goldman Sachs (GS, Financial):
GS data by GuruFocus.com
Earlier last week, Goldman Sachs fell to $176 per share and since than shares have risen back to $186. Goldman Sachs is one of the profitable investment banks that has been around for more than 100 years. The investment bank has survived numerous finanical crisises in its history including the the Great Depression. Since the financial crisis, Goldman's name has been dragged through the mud. The firm has been demonized by the media and liberals for doing what every single investment bank was doing in the early 2000's. I believe all investment banks, including Goldman, were acting stupidly in the earlier 2000's. Goldman has great managment in Chairman and CEO Lloyd Blankfein and his managment team. Blankfein lead the firm out of the financial crisis, and because of his leadership, the company now has one of the strongest balance sheets on Wall Street. The company produced operating earnings of $12.35 billion in 2014 or $26.11 per share. Goldman has produced a 10-year average earnings of $12.17 billion or $25.72 per share. When shares in Goldman fell to $176 earlier last week, investors could have picked up shares for 6.7x operating earnings and 7x its 10-year average operating earnings. Goldman was offering a operating earning yield of 14% at $176. Shares rose back to $186 by the end of last week. Goldman is selling for 10.5x its earnings and offering an earning yield of 10% at $186.
AAPL data by GuruFocus.com
Last Monday, Apple fell to $75 until CEO Tim Cook emailed Jim Cramer about Apple's growth in China. After Cramer read the email on air, Apple shares rallied upwards. Cook probably violated securities laws with his email to Cramer to prop up Apple's stock. Investors could have picked up shares in Apple for 11x its earnings and 8x its 10-year average earnings. Apple produces $52 billion in operating earnings or $8.57 per share, and $67 billion in 10-year average operating earnings or $11.06. The company is so profitable that it has over $208 billion in cash. Apple has some of the largest cash reserves of any company in the world and this is after giving back over $100 billion to shares the last three years. The company has used debt to return its excess capital to shareholders to the point that debt mades up 20% of Apple's balance sheet.Â
