Merck (MRK) is a Good Dividend Play

I like Merck for two reasons:

1. It looks to be undervalued
2. It pays a handsome dividend (4.2% yield)

Merck is a powerhouse of a company in terms of size and profitability.  It is worth over 55 billion dollars in book value on its balance sheets, and the profit margin and return on equity are over 17% and 20%, respectively.

While the stock market (S&P 500) has had an aggregate increase in value of 12.83% over the past 52 weeks, Merck has declined in value by 2.46%.  I believe this is a sign of undervaluation because of the financial strength of Merck and because of its dividend.  Merck pays a 4.2% dividend with only a 50% payout ratio.  The payout ratio represents the percent of earnings that a company pays out to shareholders in the form of dividends.  Therefore, Merck is paying out 50% of its earnings to shareholders.  Because this number is not very high (I consider very high to be above 70%) there stands a very good chance that Merck will continue to pay this dividend.

Video on Whole Foods (WFMI)

Two women named Alyce Lomax and Dayana Yochim who work for The Motley Fool do a great job of analyzing Whole Foods with their investing show called "Picks with Chicks".

Check our their video segment on Whole Foods (WFMI) which is a stock that I am a proud owner of.




Michael R Caligiuri owns shares of WFMI

Buy Goldman Sachs (GS)

Plain and simple, there is no way that Goldman Sachs should only be trading at 1.25 times its book value.

Goldman's share price has been suppressed ever since it got in trouble all the shady investment vehicles it was selling, but I believe that none of that will effect Goldman's future business operations.

Some positives about GS:

• 800 billion dollars in cash vs. only 400 billion in debt.  (Google only has 30 billion dollars in cash just to give you a perspective).
• Profit margin of over 25%
• Name Brand
• The most talented financial minds in the world want to work for Goldman Sachs (especially from my generation)

If you think Goldman's reputation is still shaky, consider that just today Goldman was rated the #1 place to work on Wall Street.

Michael R Caligiuri owns shares of Goldman Sachs stock

Sell Best Buy (BBY)

Even after a 15%+ drop in share price today, I recommend to sell shares of BBY. 

Shares fell because of missed earnings expectations.  Usually I do not fret over short term stuff like missing earnings expectations, but this is different. This is not just a short term "hick-up", but rather a sign of a long term trend.  Expectations were missed because BBY is losing market share, and because it is having a hard time competing with other companies who are selling the same stuff for less (i.e. online retailers such as Amazon).

I can see the price of BBY falling to the mid twenties if this trend continues.

Consider buying some good stocks that have been beaten up lately like GMCR and EBIX.

For an article of the recent price drop CLICK HERE

Buy Green Mountain Coffee Roasters (GMCR)

Reason to Buy:  

Great company accompanied by over a 10% drop in share price today.  The share price dropped because of missed earnings expectations.  Because I am a long term investor, I am not concerned with a one quarter mess-up.  For more on the price drop click here.

Business:

Green Mountain Coffee Roasters is a company that thrives off of its patents.  The major patents include the popular Keurig single cup coffee machine, and the K-Cups that are needed for the machine.
  
Growing and Profitable:

The revenue growth from this time last year is over 63% and the earnings growth from this time last year is over 31%.  Growth rates of over 15% are usually considered significant.

Profitability is another one of GMCR's strong points.  Return on equity and return on assets are over 16% and 10%, respectively.

Video:

If you are unfamiliar with the Keurig coffee machine just click on this link! 

Michael R Caligiuri owns shares of Green Mountain Coffee Roasters (GMCR)

Buy LULU Athletica Inc (LULU)

What triggered me to recommend this today:

Shares of LULU stock have already increased by 17% today due to a strong earnings report.  When a share price increases this much, it usually means one of two things: 1) The share price increased too much and now the stock overvalued, or 2) This price increase is just the tip of the iceberg and the share price will continue to increase in value.  Needless to say, I think the latter situation is what is really going on right now; the share price will continue to increase.

Quick Profile on Business:

Lulu is a company that provides stylish athletic apparrel for women.  It has already developed a name brand, and has had tremendous success.

Important Financial Metrics:

Extremely Profitable: 

The profit margin and operating marging are over 14% and 22%, respectively.  Return on assets and return on equity are over 27% and 35%, respectively.

Growing Business:

Revenue has increased over 55% from last year.  Earnings have increased over 135% since last year.

Cash vs Debt:

Over $178 million dollars of cash compared to zero debt

Buy Citigroup (C)

Obama is done fixing Citigroup, time to invest!

According to the Financial Times (FT.com) the government just finished selling its stake in Citigroup.

The share price of Citigroup stock plummeted because the company was not worth nearly as much as it said it was on its balance sheet.  The main reason for this was that the assets that Citigroup said it had turned out to be bad assets.  At this point, no one should have invested in Citigroup.

What happened next?  Obama jumped in and bailed the company out.  Citigroup is now financially stable after the nice injection of cash from the US government.  However, the share price has not increased as much as it should have.  Why?  Because people are still scared of Citigroup stock.

As the great Warren Buffet said, "Be greedy when others are fearful, and fearful when others are greedy."

Krispy Kreme Doughnuts (KKD)

Sell

Despite the better than expected profit and the 18% share price increase, I reccomend for investors to sell their stock in KKD.  Might as well take the awesome 18% price jump and sell.

Reason's I think this is not a good company to invest in:

• Revenue has decreased every year.  How is a company that sells doghnuts supposed to grow if it can't increase revenue?
• Profit margins are small.  the profit margin is 1.37%.  If the economy takes another turn, KKD is going to be very squeezed to make a profit.
• It is already selling for over 5X book value.  I'm not quite sure what KKD has done to warrant such a high market price.
• Most importantly, there are better companies to invest in like my previous recs on my Motley Fool CAPS blog including  VPRT, PNRA, and GS