Money and Finance
I thought it would be a good time to remind readers what Joel Greenblatt had to say about American Express (AXP) last summer. Although I haven't done the valuation work yet and thus haven't invested in AXP, there are 2 things I do know: (1) American Express is one of the few really great businesses in the world; and (2) Joel Greenblatt is one of the greatest investors in the world.
At the Ira W. Sohn Investment Research Conference last year, Mr. Greenblatt presented his investment thesis for American Express. He stated that he believed the company would earn between $3.70 and $3.75 per share in 2008 and is conservatively worth 20-22 times earnings. That would give a share price 2 years out of mid-$70s to low-$80s. He also mentioned the fact that American Express only has to reinvest about 25% of its earnings for growth, so they get to give shareholders back 75% of their earnings, either through stock buybacks or dividends.
So, although AXP is up from the $51-$52 share price last summer, the recent pullback and current price of about $58 per share certainly looks like something worth taking a further look, especially since AXP is still growing its intrinsic value at a very attractive rate. Afterall, the earnings yield is pretty close to the risk free rate and if that is anywhere close to your opportunity cost, which one would you rather own?
*This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.
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Money and Finance
A Reminder on American Express
I thought it would be a good time to remind readers what Joel Greenblatt had to say about American Express (AXP) last summer. Although I haven't done the valuation work yet and thus haven't invested in AXP, there are 2 things I do know: (1) American Express is one of the few really great businesses in the world; and (2) Joel Greenblatt is one of the greatest investors in the world.
At the Ira W. Sohn Investment Research Conference last year, Mr. Greenblatt presented his investment thesis for American Express. He stated that he believed the company would earn between $3.70 and $3.75 per share in 2008 and is conservatively worth 20-22 times earnings. That would give a share price 2 years out of mid-$70s to low-$80s. He also mentioned the fact that American Express only has to reinvest about 25% of its earnings for growth, so they get to give shareholders back 75% of their earnings, either through stock buybacks or dividends.
So, although AXP is up from the $51-$52 share price last summer, the recent pullback and current price of about $58 per share certainly looks like something worth taking a further look, especially since AXP is still growing its intrinsic value at a very attractive rate. Afterall, the earnings yield is pretty close to the risk free rate and if that is anywhere close to your opportunity cost, which one would you rather own?
*This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.
- The Marketing Alliance – A Micro Cap With A Network Effect Advantage
Below is an article written by my colleague, Matt Miller, and I about a small company that we think is a good business trading at a significant discount to its intrinsic value. The Marketing Alliance – A Micro Cap with a Network Effect Advantage By...
- Is Target’s Current Price A Bullseye For Value Investors?
There are quite a few well-known value investors who have purchased shares in Target (TGT) recently. Current worries over the consumer slow down have taken the stock back down to levels below where most of them have bought. What kind of value might there...
- The Effect Of Discount Rates On Intrinsic Value
The discount rate you use in a discounted cash flow valuation can have a big effect on an intrinsic value calculation. To illustrate, let's use an example based on the following assumptions:-Earnings Per Share Year 0: $1.00Growth Years 1-5: 12%Growth...
- Glaxosmithkline - Stout Yield Worth The Risks?
GlaxoSmithKline is the second stock that I added to the Wide Moat Dividend (WMD) portfolio. The positives are pretty clear - a 5.6% yield really stands out in this yield parched world. All the better when it comes from a defensive company like Glaxo and...
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My dividend stocks watch list this week If I move stock to this list, it means there was a price drop or current price is somewhere in the middle. I do not buy stocks at their highest prices. I might miss some good stocks but I prefer to sit and wait....