Broken Growth Stocks
We own some luscious-looking broken former growth stocks. EBay (EBAY) has been hated everyday we’ve owned it since 2008. It trades for 12 times the Value Line 2021 earnings estimate of $4.00. Discovery Inc. (DISCA) provides the nation’s most popular unscripted television shows across cable and streaming platforms and is the Rodney Dangerfield of media companies (“I don’t get any respect!”). It trades for 9.4 times its 2021 Value Line estimate and is predicted by Value Line to grow earnings at 15% per year going out four years.
Banks
JPMorgan (JPM) and Bank of America (BAC) trade for about 11 times Value Line 2021 estimates for earnings. With Covid-19’s vaccine not yet out of the hopper and interest rates being slow to gravitate back to anything close to historical norms, investors have been wisely avoiding these bank shares. JPM yields 3.67% and BAC provides a 3.04% dividend.
Two of our favorite quotes come from stock pickers, Warren Buffett and Roger Engemann. When interviewed in Forbes in late 1974, Buffett, when eyeing all the bargains said, “I feel like an over-sexed man in a harem.” In 1991, Roger Engemann was quoted in Outstanding Investor Digest saying, “I feel like a one-eyed cat in a fish store!”
Overall, this is representative of how cheap our portfolio looks in comparison to the S&P 500 Index and to growth investing methodologies. It is tempting to cherry pick these ideas, but the history of our strategy is that our ability to write about this many ideas, which stick out as deeply undervalued, has spoken well for our overall portfolio. The last time we had this many stocks stick out like this was 2009-2010. As they say, the rest is history.
William Smead is chief investment officer at Smead Capital Management.