Monday, April 16, 2007
Value play
I’m not much for fundamentals when looking for stocks to buy but I just can resist this play for all the buy and holder’s out there. The stock is Washington Mutual or the ticker symbol WM. The stock price has been toasted by the recent “sub-prime” fallout that is expected to ruin the markets forever. Whatever.
There are many reasons why I think WM should be a part of your long term/retirement portfolio:
First: Dividends
The current dividend yield is 5.6%. This is reason enough to buy a company like this. For a company with the status of Washington Mutual I would expect a 2-3% dividend yield at the most. Luckily the current yield is 5.6%, a couple decimals higher than you could get with a Washington Mutual CD. And like a CD, I’d say that a large bank is a relatively safe investment. Not foolproof but the possible returns on stock are much greater than Cds. I’ll take the stock at these levels.
Second: Price to Earnings
Compared to earnings, this stock is dirt cheap. The stock trades at just 9.25 times 2008 expected earnings and 10.83 times the expected 2007 earnings. I think WM is worth 12 times the earnings, or $48 per share.
Third: Sub Prime isn’t happening
Washington Mutual, because of its status as a lender, fell with all of the truly junk corporations who made bad loans to people who couldn’t pay them. WM has very little, if anything, to do with the subprime industry. Because of the unrelated news, investors discounted WM stock even more, now to $39.50 per share.
In my opinion, WM is a stock to hold for a long time to come. The 5.6% dividend yield, if reinvested is a great way to boost your returns instantly. The 5.6% essentially negates taxes and inflation while the remainder of the stock gain exists as pure profit. Don’t miss this one, its too cheap to ignore.