We will also compare recent stock prices to three-year highs to give us a relative idea where the stock floated in rosier times.
Price-to-Book: BTM and ETFC look like relative bargains on the cheap end. If DE and GBE were measured solely by this metric I would run.
- Brasil Telecom (BTM) P/B 0.79
- E-Trade (ETFC) P/B 0.85
- Berkshire Hathaway (BRK.B) P/B 1.23
- General Electric (GE) P/B 1.4
- Anadarko Petroleum (APC) P/B 1.56
- EZCorp Inc. (EZPW) P/B 1.60
- Anglo American ADR (AAUKY) P/B 2.11
- American Eagle Outfitters (AEO) P/B 2.37
- Deere & Co. (DE) P/B 2.49
- TNT Post (TNTTY) P/B 3.37
- Abbott Laboratories (ABT) P/B 3.59
- Brown-Forman (BF.A) P/B 3.87
- Diageo plc (DEO) P/B 8.05
- Grubb & Ellis (GBE) P/B -6.71
Price-to-Sales: By this measure GBE does an about face, while ETFC and BTM shine on. Under this microscope almost everything looks like a steal except for DEO, ABT and BF.A that are only mediocre. Again, by this data alone you cannot rule them out.
- Grubb & Ellis (GBE) P/S 0.13
- E-Trade (ETFC) P/S 0.18
- Brasil Telecom (BTM) P/S 0.52
- Deere & Co. (DE) P/S 0.59
- American Eagle Outfitters (AEO) P/S 0.65
- General Electric (GE) P/S 0.90
- Anglo American ADR (AAUKY) P/S 1.06
- TNT Post (TNTTY) P/S 1.11
- Anadarko Petroleum (APC) P/S 1.23
- Berkshire Hathaway (BRK.B) P/S 1.39
- EZCorp Inc. (EZPW) P/S 1.44
- Diageo plc (DEO) P/S 2.25
- Abbott Laboratories (ABT) P/S 2.82
- Brown-Forman (BF.A) P/S 3.17
Return-on-Equity: Here too, all of these companies provide very strong returns. the negative returns of ETFC and GBE and low returns of BRK.B all relate to the financial industry. In the case of BRK.B there is an expectation that "my pal Warren's" investments will pay off but the other two remain speculative turn-around plays.
- Diageo plc (DEO) ROE 42.82
- TNT Post (TNTTY) ROE 31.35
- Deere & Co. (DE) ROE 29.04
- Abbott Laboratories (ABT) ROE 26.87
- Anglo American ADR (AAUKY) ROE 26.83
- Brown-Forman (BF.A) ROE 26.35
- Brasil Telecom (BTM) ROE 20.13
- EZCorp Inc. (EZPW) ROE19.55
- Anadarko Petroleum (APC) ROE 18.14
- General Electric (GE) ROE16.76
- American Eagle Outfitters (AEO) ROE 13.15
- Berkshire Hathaway (BRK.B) ROE 4.34
- E-Trade (ETFC) ROE -28.50
- Grubb & Ellis (GBE) ROE -134.47
DEO made a poor showing when considering the P/B and P/S, however, it has a whopping ROE. GBE looks dismal from a P/B or ROE perspective, but my gosh it's hard to dump with that P/S. The rest of the P/B and P/S data is either great or at least passing; although ABT and BF.A do not look like compelling picks for 2010 based on this.
Next we look at price history. I think it is unlikely any of these stocks return to their highs. Perhaps they might get half way back. If that happened what kind of return would that generate.
Diageo stock peaked at $93.12 in November 2007. It closed yesterday at $67.76, $25.36 lower. Half way back would be a gain of $12.68 or 18.82% plus a dividend.
Grubb & Ellis stock peaked at $13.25 in May 2007. It closed yesterday at $1.42, $11.83 lower. Half way back would be a gain of $5.92 or 417% with no dividend. I do not expect that kind of return; however, the stock has been as high as $2.17 in the past 60 days which would be a 57% return, and that is possible looking 12 months out.
Abbott Labs stock peaked at $61.08 in January 2008. It closed yesterday at $53.24, $7.84 lower. Half way back would be a gain of $3.92 or 7.36% plus a dividend. Not too exciting.
Brown-Forman stock peaked at $84.10 in March 2006. It closed yesterday at $54.75, $29.35 lower. Half way back would be a gain of $14.68 or 26.8% plus a dividend.
After all this work the only stock I will be removing from the list is ABT. I think it is a fantastic company and one of the best stocks you could have owned over the past 20 years but I see it as safe for 2010, not a huge gainer. It would be a smart core holding for a long term or Roth IRA portfolio but the potential for the next 12 months is modest.
Naked puts (sell to open put options) See Chasing Value: Ten stocks for 2010 -- Part 4 for the analysis of these Options:
- ETFC -- April 2010 puts (EUS-PY) with a strike price of $1.50 are offering 30 cents a share. This is only offering 23 cents today -- still worth watching.
- EZPW -- March 2010 puts (ULP-OC) with a strike price of $15.00 are offering $1.55 a share. This is only offering $1.00 today -- but still a healthy return.
- F -- January 2010 puts (F-RK E) with a strike price of $8.00 are offering 91 cents a share. Premiums have dropped substantially for Ford options as investor fear has subsided. This can be cut.
- WFC -- April 2010 puts (FHU-PA) with a strike price of $27.00 are offering $2.85 a share. The premium has gone up to $3.30, even better.
This is the longest series I have written. If you to want to start the journey from the beginning here are the links: 2010 picks: -- Part 1 / Part 2 / Part 3 / Part 4 / Part 5 / Part 6 / Part 7.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: Among the positions discussed in this post I own shares of AAUKY, AEO, APC, BRK.B, DEO, ETFC, EZPW, GBE, GE, and WFC.