Price The Market Part 32 - Skip the Financials
Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Begin: Hi, my name is Glen Bradford. Welcome to the Financials part of my quest of Pricing the S&P500. This is the hard stuff, so to speak, as far as I'm concerned. Before I begin you might want to read my brief thoughts here.
End: I sat down and priced out 20 of these financial companies. After doing so I came to a brief realization... I was not confident in my price targets at all. Pricing these things and pretending that there isn't systemic risk that could immediately destroy these companies felt insincere. As such, I've decided to skip the S&P500 Financials. Fact is, nobody is holding a gun to my head making me price these companies. What is the point of diluting my credibility by trying to assign values to businesses that I sincerely believe could be in over their head and not factoring that into my price? Would it be reasonable of me to expect to be able to try and unearth potential fraud by myself using cursory glances? Nope.
I will say that my brief analysis of the TBTF banks is alarming to say the least. If they were held to the standards that other businesses operate by, bankruptcy and fear would be more widespread. I think this brings me to my largest finding that deserves to see the light of day. Let's talk about IBM. That will be the beginning and end of the financials. There were 81 financials that I just skipped. That takes my count to 231.
151. IBM (NYSE: IBM) is one company that isn't gaining enough negative attention. IBM's in way deeper than the few who've noticed they're in at all even realize. First, they took over the back-office work for a few banks. As far as I can tell, IBM pretty much runs JPMorgan's entire operation as far as back-office operations goes. Next, IBM purchased a loan servicer and changed its name to IBM Lender Services. Look it up on google, it's fascinating. They've changed the name of this business and it is my opinion that the name change occured as they saw it blowing up in their faces. When the public and analysts figure out what's been happening, the price will drop. I actually learned how to look for this type of operation by trying to go long another company, DJSP Enterprises. That blew up in my face as the operation was effectively shut down. Michael Olenick is the guy you'll want to send your detailed questions to regarding IBM. Target: $100-$130. I'm betting CAPS points on this one.
231. Johnson & Johnson (NYSE: JNJ) is a company that I've covered in detail before discussing that there was limited or no upside when it was trading around $70. I still feel that way at that price. In fact, I feel that way about the present price. I'm comfortable projecting lower prices for JNJ in the future. There will be a point in the future that this trades below $60. Target: $60-$65. I hate sounding so negative but this isn't really a growth company anymore and it's trading as if you'll see slow growth. At $60, I wouldn't be so opposed.
232. Intuitive Surgical Inc. (NASDAQ: ISRG) is rocking out new all-time highs. It's time to put on my "Is it sustainable?" hat. For starters this is very expensive. I'm not surprised to see absolutely no insider purchases. Here comes Bret Jensen, who is practically infamous at this point if you read my articles pricing the market. Target: $275-$340. I think that this will eventually fall back to earth. Steer clear for now.
233. Hospira Inc. (NYSE: HSP) is cheap after it got murdered down from the $50's. With EPS guidance of $2.95 ballpark, this is a P/E of around 11 at present. Target: $35-$40. I think that we saw some end of year tax loss selling and that's all in the past. Clear the way for higher prices. I'm voting on this with CAPS points.
Extra: Ron also wanted me to look at Elan Corporation, plc. (NYSE: ELN). Elan is cresting recent highs but it has a history of price collapses. Gross. Also they have been doing an excellent job of operating at a loss for the last 5 years with a few exceptions. There's presently a takeover rumor running around from Johnson & Johnson (Ironically, I cover this company above). Frankly, I have no good way to price this one. Personally, I wouldn't own it or bet on it. I'd say it's a sell at $14 for sure. Target: $10-$12.
Glen has no positions in any of the companies mentioned above.