Your QE Apocalypse Shopping List, Part 2

by Lawrence Meyers | August 5, 2013 6:15 am

Your QE Apocalypse Shopping List, Part 2

The market has been given another reprieve as far as the Fed bond-buying is concerned, and I expect this to be the case for quite some time.

Of course, quantitative easing has driven bond yields into the ground, and investors in search of dividends have been forced into the stock market. As a result, we’ve seen inflation in the stock market, and some really great companies selling at outrageous prices.

How outrageous? Anywhere from 30% to 100%.

Now, when QE ends — or maybe when the Fed announces it will end or even taper off — folks could go rushing back into bonds, sending money out of the equity markets and causing stock prices to fall. If so, I want to have a shopping list of stocks I really want for my portfolio but are just too darn expensive right now.

I’ve already put together one shopping list[1], but there are a few other stocks I have in mind:

Walt Disney (DIS[2]) is the premier entertainment play at this point, and no other company comes close. It is so diversified across the entire entertainment spectrum that a failing in any one or two sections of the company will not drag the whole company down. It has a world-class brand name and — with its purchases of Marvel, Pixar and LucasFilm — enough global film brands to last a generation.

Berkshire Hathaway (BRK.B[3]) should probably be in everyone’s portfolio in some form, likely through the less-expensive B shares. Again, this is a highly diversified set of the greatest American companies in existence. They stretch across all aspects of the economy, anchored by a longtime insurance unit that generates great returns for investors.

Visa (V[4]) and MasterCard (MA[5]) are actually reasonably priced compared to most other stocks, but they’ll be a lot cheaper if they get hit with a pullback. V shares recently were discounted thanks to a ruling on debit-card swipe fees[6], but even now they still trade for 31 times this year’s earnings. Nonetheless, by now you might sense a pattern in this list — global brand names with little or no real competitive threat. The credit card business is an oligarchy, and that’s something you always want to buy into. Either one works for me.

US Bancorp (USB[7]) remains one of the best-managed banks you’ve never heard of, despite its $45 billion market cap. This conservative bank didn’t have the same exposure to the mortgage crisis as many of the other nation’s big banks, and has thus been extremely solvent and in rock-solid financial shape. I think it’s the heir apparent to the Big Four.

BP Prudhoe Bay Royalty Trust (BPT[8]) pays out a 9.5% dividend and is expected to continue producing oil until 2029. That gives you 15 years to profit off the stock in the meantime, and earn a great yield. However, it’s just too expensive right now.

Vornado Realty Trust (VNO[9]) is another premier name, this one in the commercial real estate sector. Vornado continues to select and manage the best properties in the nation, and pays a 3.3% yield. If the market falls as people rush back to bonds, that yield will rise.

The same goes for Equity Residential (EQR[10]), which is all over the residential apartment space, generating gobs of revenue. The REIT pays 2.8%, and again, the yield should go up if the stock falls.

Finally, we have a stock I’ve never been able to pull the trigger on, but definitely will if it gets hit in a market selloff. That, my friends, is Google (GOOG[11]). The mere fact that this company is effectively going to rule the world — and I’m only half-joking about that — is reason enough. But here’s a company with $55 billion in cash and short-term investments (about $165 per share) and that generated $13 billion in FCF last year alone. Still, at an effective price of $737 per share, trading at 17 times earnings on 14% profit growth, I want to see it fall about $150, and then it’s a screaming buy.

As of this writing, Lawrence Meyers was long DIS and BRK.B. He is president of PDL Broker, Inc.[12], which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books[13] and blogs about public policy, journalistic integrity, popular culture, and world affairs[14]. Contact him at pdlcapital66@gmail.com[15] and follow his tweets @ichabodscranium.

Endnotes:
  1. one shopping list: http://investorplace.com/2013/07/your-qe-apocalypse-shopping-list/
  2. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  3. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  4. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  5. MA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MA
  6. recently were discounted thanks to a ruling on debit-card swipe fees: http://www.bloomberg.com/news/2013-07-31/visa-falls-after-court-ruling-on-swipe-fees-san-francisco-mover.html
  7. USB: http://studio-5.financialcontent.com/investplace/quote?Symbol=USB
  8. BPT: http://studio-5.financialcontent.com/investplace/quote?Symbol=BPT
  9. VNO: http://studio-5.financialcontent.com/investplace/quote?Symbol=VNO
  10. EQR: http://studio-5.financialcontent.com/investplace/quote?Symbol=EQR
  11. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  12. PDL Broker, Inc.: http://www.pdlcapital.com/
  13. written two books: http://www.investorplace.com/author/lawrence-meyers/
  14. blogs about public policy, journalistic integrity, popular culture, and world affairs: http://www.ichabodscranium.com/
  15. pdlcapital66@gmail.com: mailto:pdlcapital66@gmail.com

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