4 Gotta-Have Stocks That Are Finally Cheap Enough to Buy
The problem with quality is that you usually have to pay up for it. Often, the stocks of gotta-have businesses are selling at gotta-pass prices.
But fortunately for bargain-hunting investors like you and me, some of today's most proven, high-quality stocks are trading for prices that range from reasonable to back-the-truck-up cheap.
Without further ado, here are four high-quality, gotta-have stocks on sale.
According to a recent book by James Andrew Miller and Tom Shales, ESPN is "worth more than the entire National Football League, worth more than the NBA, MLB, and the NHL put together."
ESPN's dual income stream from cable and advertising makes it a cash cow for its parent, Disney (NYS: DIS) . It's managed to keep a start-up mentality even as it's grown into the true Worldwide Leader in Sports. We see this as it expands internationally and makes aggressive moves with video on the Internet (see ESPN3).
ESPN has quietly built quite a moat for Disney and has grown to make up an outsized portion of its parent company's profitability. The Media Networks segment, which includes ESPN, makes up two-thirds of Disney's profits.
Disney is down 20% off its 52-week high and is trading at a solid five-year price multiple of 15.6. This is a reasonable price for a company chock-full of iconic brands, but believe it or not, I'm more bullish on the other three at today's prices.
Two deceptive winners
I frequently hear frustrated investors complain, "But look at the price charts of Wal-Mart (NYS: WMT) and Microsoft (NAS: MSFT) . They haven't done anything for a decade!" In fact, I hear it about many of the large blue chips in the Dow Jones (INDEX: ^DJI).
And they're right. Sort of. But they're forgetting two things.
- Earnings have exploded. Wal-Mart and Microsoft both earn almost three times as much in net income as they did in 2001. If you look at earnings per share, which factors in Microsoft's massive share buybacks, we're talking four times higher!
- Those flat returns don't include dividends. Wal-Mart paid out $27 billion in dividends over the last decade (over a 10th of its current market cap). Microsoft's total is $64 billion (over a quarter of its current market cap).
So in the last 10 years, Wal-Mart and Microsoft have massively improved their profitability while paying back shareholders goodly portions of their capital. For this, they trade for 11.5 and 8.7 times next year's earnings. Add in Wal-Mart's potential international growth and Microsoft's underrated staying power and both are serious blue-chip bargains!
The next stock may be just as discounted.
The greatest investor at a discount
The greatest investor in the world is bullish on the company he knows the best.
Buffett is being disciplined as always, not willing to pay more than 1.1 times Berkshire's book value. The current value is flirting with that price at 1.18 times book value. Volatility could bring it under 1.1 quickly.
Not impressed with Buffett loving his own handiwork? Chew on this. Bruce Berkowitz is among the best mutual fund managers out there. Perhaps the best. Morningstar named him "Domestic-Stock Fund Manager of the Decade" for the 2000s. Yet his fund holds almost 10% of its assets in Berkshire stock -- essentially outsourcing a sizable chunk of his investing decisions to Buffett.
That's a powerful combination of endorsements.
And I can add one more endorsement to the list. The Motley Fool's very own Million Dollar Portfolio owns shares of Berkshire Hathaway (as well as those of Microsoft and Wal-Mart). If the kind of investing I've been writing about appeals to you, I invite you to grab a free report detailing five stocks hand-picked by the Million Dollar Portfolio team. Just enter your email address in the box below, and we'll send you a copy. We hope you enjoy the free report!
At the time this article was published Anand Chokkavelu owns shares of Microsoft and Disney, but he holds no other position in any company mentioned. The Motley Fool owns shares of Microsoft, Wal-Mart, Berkshire Hathaway, and Under Armour. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Microsoft, Under Armour, Disney, Wal-Mart, and Nike. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart; creating a bull call spread position in Microsoft; and creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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