To All, My stomach is still hurting from laughing at analyst excuses for the mania in financial stocks. "Sure, there is a takeover premium, but these guys also have great eps. Look at Merrill, for example." O.K., let's do just that.
Merrill is selling for 20 times eps at what is a new top in the stock market. This may not be the final top, but it has been many moons since a cyclical bottom. Wall Street business was better than it has ever been in history. So, what kind of eps gain did Mother Merrill show? A whopping 11 pct. Whoa, didn't HWP, which sells at a lower multiple, fall last year when they reported an 11 pct. eps gain? True, Hewlett gained its price back, but this is hardly a world beater number from a firm that should profit mightily in this manic environment.
Maybe it is the high dividend yield that attracts the hot money. That .8 pct. payout will double your money in just 90 years. But we know that Baby Boomers will live forever, so time doesn't matter.
The 11 pct. is being given a high pe ratio due to the predictability of eps in the future, I suppose. After all, everyone knows that there are lots of investment banking fees, huge commission flow and never an outflow of cash from managed money during a bear market. -g-
So, if analysts say, hey, we don't care, it's a takeover story and we are going to ring its bell for all it's worth, I will hate their slimy guts, but at least they would be honest. But to tell us this is a fundamental story is either a lie or they have just smoked a turbo booster rolled by Cheech and Chong. -g-
Good luck, MB
|
