Jason Boudrias's List: Investing-Top Picks

• Visa Inc. (V) is a leading global provider of payment processing services and is based in San Francisco. As the world relies more on technology and E commerce, electronic payments should continue to grow at the expense of cash transactions. This will benefit Visa and allow the company to grow in the future. Since Visa receives a transaction fee, but does not take on the credit risk, it is viewed to be more of a tech stock and has performed well when compared to the financial sector. Visa shares have been in a solid uptrend and the stock is worth buying on dips below $100.

  Here are some key points for V:

  • Current share price: $101.42
  • The 52 week range is $67.51 to $102.50
  • Earnings estimates for 2011: $5.85 per share
  • Earnings estimates for 2012: $6.78 per share
  • Annual dividend: 88 cents per share which yields .9%

• VMware, Inc. (VMW) is a leading business software solutions company that is focused on the cloud and virtualization markets. After trading around $100 in November, this stock has been trending lower. It looks to have found support at about $78 per share. VMware has a solid management team and the outlook for growth remains strong. This stock looks like a great buy on dips below $80.

  Here are some key points for VMW:

  • Current share price: $82.24
  • The 52 week range is $74.04 to $111.43
  • Earnings estimates for 2011: $2.15 per share
  • Earnings estimates for 2012: $2.51 per share
  • Annual dividend: none

• Investment Reporter  Mar '09
• The Successful Investor  Oct '09

• This drop followed another announcement of a change that does not sit well with either customers or investors — this one regarding management's intention to split the company into two businesses: Netflix (streaming only) and Qwikster (DVDs by mail only). The result is separate billing, separate queues, and a lot of people saying they'll separate themselves from the company.

• IBM had doubled in New York trading in the 27 months prior to the Feb. 22 release of its yearly 10-K filing. Coca-Cola had doubled in the four years through the end of 1987, and has risen more than 10-fold since.
• IBM climbed to a record on Oct. 14. Buffett said he acquired most of the stake in the three months ended Sept. 30.

• IBM’s Strategy

   

  Buffett highlighted IBM’s opportunities to expand outside the U.S. and the company’s track record of executing its strategy. The $220 billion company is targeting operating earnings of at least $20 a share by 2015, from a projection of $13.35 for this year. IBM spent more than $100 billion on dividends and buybacks since 2003.
• “They are thinking about the shareholders,” Buffett said in the televised CNBC interview. “They treat their stock with reverence, which I find is unusual among big companies.”

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• Two of these three banks, State Street Corp. (STT) and Bank of New York Mellon Corp. (BK) are large and more importantly, so entwined with other banks and the economy at large that they are both on the Financial Stability Board's list of 29 banks too big to fail. All these banks are struggling with this ultra low interest rate environment, as many institutional investors are simply utilizing cash rather than securities.

• Bank of New York Mellon Corporation

  BONY is the largest principally custodial bank in the country. It has custody of or administrative duty on $25.8 trillion, and actively manages over $1.26 trillion. On its own, it has $228 billion in assets, making it the seventh largest bank in the country by assets. All this, and BONY only has four domestic branch offices, though it also has 13 such offices overseas. BONY stock was trading recently at about $20 per share. Its 52 week range is from $32.32 to $17.10. Its price to earnings ratio is 10, and it has a market capitalization of $24.3 billion. It pays a quarterly dividend of $0.13 per share, for an annual yield of 2.6%.

  BONY has been embroiled in multiple suits over currency rate issues. It was alleged BONY promised many customers the "best" exchange rates, when of course that is not possible. Rumors are that one of the most significant of the suits is ripe for settlement. If that and similar suits can be resolved, it will remove a long term black cloud. In its fourth quarter of 2011, BONY posted earnings of $505 million, or $0.42 per share, down 26% from the year ago $679 million, or $0.54 per share. The 2011 quarter had various one time charges and credits, by far the most significant being a $107 million charge for personnel layoffs.

  I do not see much in BONY's future to feel good about, other than its quality balance sheet. The 4th quarter earnings were 21% below analysts' expectations, and I see a fairly neutral 2012. Your financial sector dollars can be spent better.

• After Bank of New York Mellon last Wednesday announced fourth-quarter earnings of $505 million, or 42 cents a share, declining from $54 cents a share in the third quarter and 53 cents a share during the fourth quarter of 2010, Guggenheim Securities analyst Marty Mosby reiterated his "Buy" rating on the company's shares, saying that the "results reflected the full impact from this low interest rate environment and the preference of investors to de-risk their positions."  

  Mosby added that "The inability to continue to grow earnings in this operating environment has pushed BK's price to earnings ratio to historically low levels" to forward earnings estimates, but that he expected "efficiency initiatives, a stable net interest margin, an acceleration in share repurchases, and a return of investor confidence to help produce at least 10% EPS growth in 2012."   

• The analyst also believes that after the Federal Reserve completes its latest round of stress tests in March, Bank of New York could raise its dividend yield to 3.5%.   

  The shares trade for nine times the consensus 2012 earnings estimate of $2.26 a share, among analysts polled by FactSet.  

• Conclusion

  I am bullish on the banks for the long term. They are trading significantly below intrinsic value coupled with strong fundamentals. Some are trading below liquidation value which presents an amazing buying opportunity. What's more, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades, positive analyst comments and some pay dividends.

• But the bank is facing mounting legal pressure related to claims it overcharged investors for currency trades as part of a decade-long scheme. The allegations, also aimed at rival State Street Corp. (STT), threaten to upend what has been a profitable business line for the bank. Bank of New York Mellon and State Street have both denied the claims.

• With dividends becoming increasingly more important, investors should consider financial stocks that pay dividends ahead of financial stocks that do not pay dividends. This article lists the top dividend payers in each sub sector of the financial sector.
• Bank of New York Mellon (BK) Yield: 2.44%

• Canadian Banks

  Bank of Montreal (BMO) Yield: 4.83%
  Bank of Novia Scotia (BNS) Yield: 4%
  Royal Bank of Canada (RY) Yield: 4.16%

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