Bank of America made a $4.6 billion profit between April 1, 2015 and June 30, 2015. Investors are finally getting a glimpse of what Bank of America’s profit engine looks like without lawyer fees, judgments, and settlements clouding the picture. This time last year, in contrast, Bank of America only provided a $2 billion profit after all expenses were taken into consideration.
The company’s Common Equity Tier 1 Capital Ratio remained at 10.3%, unchanged over the past few quarters. This will likely put Bank of America on the path to meaningful dividend growth in the years ahead, as it’s finally past the point of having to use profits to shore up the capital base.
In 2012 and 2013, Bank of America had a Common Equity Tier 1 Capital Ratio in the 9% range. This was enough to meet the Basel III target of 8.5%, but it fell short of the … Read the rest of this article!
A counter-intuitive investment principle is this: running to a sector of the economy after it blows up often proves, in hindsight, to be one of the safest things you can do.
Take a look at something like the Nasdaq Fund, QQQ, which tracked the technology stocks affected by the dotcom bubble. Between the fund’s inception on March 10, 1999, and July 23, 2002, the fund lost almost 60% of its value. A portfolio with $100,000 in a basket of tech stocks in 1999 would have become $43,400 by the summer of 2002. And yet, history favored those that purchased technology stocks after the collapse.
From July 23, 2002 through today, the QQQ Fund has delivered 14% annual returns to turn $100,000 in July 2002 into $547,000. The same fund. The same exact assets. Yet a wildly different result based on whether you waited three years to start your investment. The … Read the rest of this article!
Reynolds American tobacco has officially acquired Lorillard and now owns Newport, one of the strongest brands in the tobacco sector that has industry leading profits in the menthol sector and has maintained volume shipments even while the tobacco-smoking industry as a whole shrinks by 3.5% annually in the United States.
The addition of Newport has greatly increasing the per share earnings power of the company even after adjusting for dilution resulting from the acquisition. Before the transaction, Reynolds had 530 million shares outstanding and was earning $2.70 per share, or $1.4 billion in net profits.
Now that Reynolds has ownership of Newport (which accounted for 88% of Lorillard’s 2014 sales) and the remaining 12% of the Lorillard portfolio, the expected profits for Reynolds American is $4.15 per share, or $2.6 billion in net profits spread across 715 million shares.
This is what catches my attention: For most of the past … Read the rest of this article!
It seems to me that there are two primary categories of successful investments that beat the S&P 500 over the long haul.
Category 1 involves buying replenished known quantities. You can look at Colgate-Palmolive or Hershey, and conclude based on past history that when the price is X and conditions Y, Z, and Q exist, the investment has been successful in the past. That informs the decision to make the investment, and gives the much needed confidence to ride through the lows.
Category 2 involves buying companies with brighter projected futures than pasts. You can look at Union Pacific in 2005, and then conclude that conditions Y,Z, and Q look better going forward, so paying X price now is actually much better than the last time. Bill Gates has had a knack of spotting this before Warren Buffett.
My instinct is that Category 1 is easier to execute and can … Read the rest of this article!
#The Theory of Investment Value by John Burr Williams
This book is still in print sixty years after it was written, despite never having been updated or revised. That testifies to its classic status, in a field, financial analysis, which generally changes rapidly.
The author defines the “Investment Value” of a stock to be the net present value of all its future dividends. This definition provides a measure of intrinsic value which is independent of stock market prices, enabling the investor to assess whether the current market price is high or low compared with the Investment Value of the stock.
A calculation of Investment Value inevitably requires estimation of factors such as future growth of earnings, the proportion of earnings that can be paid as dividends, and an appropriate discounting rate. The author does not shy away from making such estimates, and the book includes practical case studies for three … Read the rest of this article!