by Jamie Dlugosch | November 7, 2011 10:48 am
The Occupy Wall Street crowd fails to appreciate the considerable good that is done on the Street. The initial public offering of Groupon (NASDAQ:GRPN) should serve as a reminder of one of the system’s benefits.
I find the Occupy Wall Street crowd to be a bit disingenuous and misguided in their demonstrations. Oh, I get the frustration, believe me. Even within the financial industry there are many professionals dissatisfied with the state of their business. A few bad apples have tainted what should be viewed as a crown jewel of our capitalist system.
Think about all of the good that Wall Street has accomplished in both the public and private sector. For example, the funds provided by municipal bonds allow state and local governments to provide widely used and needed essential services. On the public side, the number of companies funded by Wall Street accelerated innovation and technology that created vast sums of wealth and more importantly jobs.
Are there problems with how Wall Street goes about its business? Sure, but nothing is perfect and our system of capitalism has far more benefits than disadvantages. Don’t begrudge those making money on Wall Street. They have earned it.
So instead of occupying Wall Street, put your money and efforts to better use — occupy these three Wall Street firms.
The cream of the crop on Wall Street has been struggling since the European debt crisis reared its ugly head this summer. Reflecting the difficult environment, shares of Goldman Sachs (NYSE:GS) are down 24% since the beginning of July.
Goldman Sachs reported an operating loss of 84 cents per share in the most recent quarter, missing estimates by a whopping 78 cents per share. The big miss has tempered enthusiasm for the fourth quarter — estimates now are at $2.86 per share for the period, as opposed to $4.61 projected 90 days ago.
Given the big run-up in stocks in October, look for Goldman to come closer to the $4.61 estimate. For the full year, the company is expected to make $6.17 per share. Analysts look for profits to double in 2012 to $13.79 per share. At current prices, Goldman trades for a paltry eight times next year’s earnings.
The stock is one to occupy today in advance of what I expect to be a very strong earnings quarter on a market more conducive to investment banking.
One Wall Street firm that does most of its business off Wall Street is regional investment bank and money manager, Piper Jaffray (NYSE:PJC). The company has seen its stock tumble this year, losing 38% since early July. The selling of late is directly correlated to the company’s poor performance in the third quarter.
In the period ending Sept. 30, Piper lost 23 cents per share, compared to the 19-cent loss expected by Wall Street. And that estimate was lower than projections 90 days ago, meaning this loss is even more concerning. That said, investment banking revenue was at a standstill in the quarter thanks to a market unlikely to repeat itself.
Investors should throw Jaffray’s previous quarter’s performance out the window. In a normal market, Piper Jaffray is a solid company. More importantly, after the market’s strong gains in October, look for Piper Jaffray’s earnings to be strong in the fourth quarter. For the full year, Wall Street is looking for a profit of $1.28 per share. That number is expected to grow by 73% in 2012 to $2.22 per share.
With Piper trading currently for just nine times 2012 estimates, the time to buy PJC is now. With economic growth doing better than many expected, Piper could rally significantly in the next 12 months. Its CEO also recently bought 5,000 shares of his company’s stock — never a bad sign.
If you have angst against Wall Street and you can’t bring yourself to buy the above two choices, consider TD Ameritrade (NASDAQ:AMTD). The discount broker represents the little guy, serving the individual investor with low-cost trading. And TD Ameritrade makes its money when there is more market activity.
Like most stocks tied to market activity, TD Ameritrade has struggled. AMTD shares are down 13% since the beginning of July. Individual investors, more so than the professionals, really struggle in a market this volatile, uncertain and negative. The response is to crawl into the fetal position and do nothing. That lack of activity has spooked investors in TD Ameritrade.
In the quarter ending Sept. 30, the company made 29 cents per share versus estimates of 31 cents. Not a bad result considering that 90 days ago, the estimate for the company was to make 27 cents per share. The company experienced heavy trading thanks to the volatility in the market.
For the full year also ending Sept. 30, TD Ameritrade made $1.09 per share. That number is expected to grow by 7% in fiscal year 2012 to $1.17. At current prices, the stock trades for 15 times FY 2011 estimated earnings.
Given that volatility in the market is here to stay, Wall Street appears to be a bit conservative with respect to next year’s estimates. If trading volume increases, the company could do substantially better than expected. The same is true if we manage to avoid a recession. This is a Wall Street stock the little guy can fall in love with irrespective of feelings toward Wall Street.
As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks.
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