Wall Street divides equities in many ways according to size, industry and investment style. You have large-cap, small-cap value, large-cap growth and so forth. I do away with that and focus on the individual security. And rarely do I get the opportunity to say there are best-in-class businesses that may just be bargains today.
Yet there are, beginning with American Express (AXP) . Rarely, if ever, do you get a company of this caliber for 11x earnings. Yes, AmEx has guided lower-than-expected earnings for the next two years, but that is a limiting viewpoint to what the company can achieve. The company is being valued as if it were a big bank, but with margins that bankers could only fantasize about: 30% EBITDA margins and return on equity of nearly 30%. Goldman Sachs (GS) doesn't even pull in a ROE of 10% anymore.
Indeed, Visa (V) and MasterCard (MA) are strong competitors and have made no secret of going after AmEx's lucrative elite business. But AmEx has also decided to pursue customers who keep a monthly balance as well. Regardless of how you slice it, AmEx is trading at a P/E multiple that is one-third of the multiple afforded to Visa and MasterCard. AmEx remains an exceptional business that is trading at something of an exceptional price for long-term investors. (Visa is part of TheStreet's Action Alerts PLUS portfolio.)
Another best-in-class titan is fertilizer giant Potash (POT) , which I've commented on before. World grain harvests are coming in at records, thus depressing crop prices, which in effect reduce demand for fertilizer. Unfortunately, Potash today confirmed it is in merger talks with Agrium (AGU) , so it will be interesting to see how this saga plays out. But there are other intriguing companies here, including CF Industries (CF) , a nitrogen fertilizer producer that yields 5%. If consolidation is about to occur in this industry, names like CF and Mosaic (MOS) could go along for the ride.
Warren Buffett has famously stated that he would rather buy a great company at a fair price than a fair company at a great price. That's probably because it's a rare occurrence when you find a great company at a great price. When an opportunity like that arises, it's time to act quickly and boldly.
