Friday File: Catchup on A Dozen Companies

Checking in on quarterly results and other news from some favorites, and a couple small buys

A hodgepodge of thoughts and comments to catch up with thoughts on a few companies that have reported quarterly results or had other meaningful news as I was on vacation — and a quick note on a small buy.

First, I need to let you know that I bought a few JP Morgan warrants (JPM-WT) — these are the same ilk as the Boston Private Financial (BPFH) and PNC Financial (PNC) warrants I featured as our “Idea of the Month” almost exactly a year ago, and like those other warrants there is substantial leverage and a pretty easy hurdle to good performance… as long as you don’t think the economy is going into decline for the next four years. It’s pretty rare to get long-term warrants on solid, growing, huge companies, and so I think most of the TARP warrants remain discounted relative to their value, but PNC and JPM are my favorites in the bunch at these prices …. partly because the math of the current pricing is so easy. JPM-WT has a strike price just over $42 and an expiration date of 10/28/2018, so you’ve got about four and a half years to go and the warrants are in the money (the current share price of JPM is about $56). Right now, if you wanted to exercise, the warrant would be worth $14. It sells for about $18-19 (all the warrants are pretty illiquid, so you have to be patient with pricing). That means, assuming no big buybacks or dividend increases (either would improve the strike price or terms, these are anti-dilutive warrants), that we’re betting on JPM having a share price of $60 or more in 4-1/2 years. Meaning, we’re betting that JPM stock will rise by at least an average of about 1.5% a year for us to break even.

Of course, that doesn’t discount the 54 months in the meantime, or other productive things you could be doing with your money for that time period — or, in fact, the notion that if JPM stock only goes up 1-3% a year or so then you’d be better off with the stock than with the warrants. But the fact remains, JPM is trading at almost exactly book value now and should be able to grow that book value by at least 5% a year, and I think there is likely to be a ...

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