With world sharemarkets having a hissy-fit, some top quality shares are available on the cheap. It’d be a shame to pass up the opportunity, writes The Motley Fool.
The problem with quality is that you usually have to pay up for it. But fortunately for bargain-hunting investors like you and us, 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 (NYSE: 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 around 16. This is a reasonable price for a company chock-full of iconic brands.
But, believe it or not, we’re more bullish on the other three at today’s prices.
Two deceptive winners
We frequently hear frustrated investors complain, “But look at the price charts of Wal-Mart (NYSE: WMT) and Microsoft (Nasdaq: MSFT) . They haven’t done anything for a decade!”
Here in Australia, the same could be said about Insurance Australia Group (ASX: IAG), National Australia Bank (ASX: NAB) and even Wesfarmers Limited (ASX: WES). In fact, we hear it about a number of the large blue chips in the ASX/S&P 200 Index (INDEXASX:XJO).
And they’re right. Sort of. But they’re forgetting two things.
1. 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!
2. 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 around 11.5 and 9 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.
Translation: Warren Buffett announced that his holding company Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) is breaking from tradition and has authorised share buybacks.
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 U.S. “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.
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