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Washington Mutual
12/4/2002
LT Buy at $35.49. Price
target: $52.00
By Chris Stallman
| E-mail
Wow, what
a turbulent stock market we've seen over the last couple of
months. There's no doubt that the market has been up and down
a lot this year but if you keep the mindset that investing for the
long-term is very profitable, you'll be fine. We have also decided
to pick a new stock this week that we hope will help you comfortably
ride out the stock market this year.
Many of
you are probably familiar with Washington Mutual (a.k.a. "WaMu").
For those of you who aren't, Washington Mutual is the largest
thrift in the US with its 2300 locations. The company is based out
of Seattle and not only specializes in banking but also in life
insurance, mortgages, and investments.
The stock's beta, a number that measures its volatility
relative to the market, is only 0.5 so this means that the stock
is only 1/2 as volatile as the S&P 500. This is always good
news if you have a hard time stomaching wild swings in stock prices.
What I Like About
This Stock
- Strong
profit margin - It's 19.0% profit margin is well above
the industry's average of 15.0%. And the profit margins
have been steadily increasing.
- Less
volatility - The stock is less prone to swings in prices so it
typically stays on its long-run track.
- It's
still pretty cheap - The stock is currently trading at a P/E of
10.0 and is trading at 8.8 times next year's earnings. The
average savings and loans stock is trading at 13.3 times current
earnings.
- Well-liked
by analysts - Many analysts on Wall Street currently rate the
stock as a long-term buy, with Lehman Brothers announcing today
that their price target is $50.00.
- Strong
management - The management at WaMu has been great at building
shareholder value.
What I Don't Like About This Stock
- Identity
theft case - In the year 2000, the single largest identity theft
began to take place as 30,000 Americans had their credit reports
tapped into. It was estimated that 500-600 Washington Mutual customers
were impacted. But because the damages have yet to be determined,
no one knows how big of an impact this will have. Although it'll
probably be pretty small, it doesn't help the company.
- Interest
rates - Low interest rates right now mean more mortgages but if
the Fed ever starts raising rates again as they did in 1999 and
2000, I'd expect fewer mortgages originating from WaMu.
In general, I think this
is a very solid long-term investment. I would look to see the company
trading at about $52.00 by this time next year, which would be 12
times next year's earnings. After that, I expect to see solid
12-15% growth. Happy holidays!
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