I don’t usually comment on the same stock two weeks in a row, but recent news about Credit Suisse (CS) had many of you asking for an update to last week’s Buy, Sell, or Hold.
Rumors are swirling that U.S. bank State Street Corp. (STT) may takeover Credit Suisse. Now, I’ve gone on the record to say my piece about Credit Suisse and the corruption in Swiss banking, so it may not surprise you that I strongly doubt that U.S. regulators would let STT touch it with a ten-foot pole.
But, I still think there’s an opportunity here, a speculative play on both STT and CS.
06/10/2022 Buy, Sell, or Hold Transcript
Hey everybody! Shah Gilani coming to you with your Friday BS.H, where I recommend whether you should buy, sell, or hold the stock you ask me about at firstname.lastname@example.org.
Today’s is a pretty tight list for you. Some repeats because some of them bear repeating, so let’s get into it.
First up… Of course, once again, Credit Suisse (CS).
I don’t think this bank is going anywhere because it’s “too big to fail.” So, at $6.65 today (and I’m recording this on Thursday a little after lunchtime), it’s a speculative buy. Again, too big to fail.
Does that mean it’s very going down? No, this is probably one of the worst run international giant banks ever. There are probably other discoveries to be had about issues that the bank gets caught on regularly. It’s just a mess, absolute mess. But, again, two big to fail is the bottom line. So, at $6.65, it’s worth the speculative buy. Don’t bet the farm on this, but if you want to have some fun with it, I’d say throw a little bit of money down in CS.
Do I think the State Street Corp. rumors that acquire or is in talks to acquire Credit Suisse? Any merit to those rumors? Not in my opinion. First of all, a U.S. bank buying a big Swiss bank that’s a mess? Why would U.S. regulators allow State Street to buy a bank that’s got so many problems that would be imported to a domestic bank that is systemically important?
So, no, I don’t see that happening. Is it possible? Sure. It’s possible. I don’t think it’s probably – but that’s not the reason to buy CS. The reason is that CS is simply too big to fail. It’s in the dumps and I think, for a swing-for-the-fences kind of speculative play, I would have fun with it.
Again, don’t bet the farm on this. Only a little bit of money. A sum that, if you lost 50% on the play, you wouldn’t be torn up about. That said, I’d hang in for a year or two, because there is a chance we can double our money if we have patience. So, CS: it’s a buy.
Speaking of State Street Corp. (STT), I like it down here. Is it the best bank? Is it my favorite bank? No, but I like the financials. Down here, they’re starting to look good, and STT has a 22% profit margin. It’s not your typical bank. It’s more of a custody trust bank. It owns the SPDR franchise and the ETFs. It is in all kinds of other businesses, including prices assets, holding assets, securing assets – they do a lot of institutional stuff.
It’s not your typical JP Morgan, Chase, or Bank of America. It’s a different type of institution that a lot of other institutions use. I like STT. I think it’s well run. The profit margins are a neat 22%. As far as quarterly earnings growth, it’s a pretty nice 14% (based on the last quarter) year-over-year. That’s pretty decent. Quarterly revenue growth year-over-year is 4% year-over-year. That’s okay because it hasn’t been blockbuster time for some of these banks – so, to me this bank is on sale.
It’s down 35% off its highs, people, and it pays of dividend – the dividend yield on it is 3.12% on a 30% payout ratio. Lots of room to raise the dividend, for sure. I like buying stuff on sale and I like buying STT.
Next up, DiDi Global Inc. (DIDI). I really don’t like this company. Negative profit margins… And it’s in a business I don’t like. I don’t like this whole ride sharing, grocery delivery business. All of the things they’re trying to be in and do in China (and elsewhere).
DiDi is a mess. It’s a large mess, however, it’s also been hammered because of Chinese regulators slapping it down. But the ADRs (American Depositary Receipt) are trading for $2.28 right now – so I think this is another speculative play.
This is a Take It to the Bank type buy? No, this is speculative, not unlike Credit Suisse. Throw a little bit of money at it. I think you could get a 100% gain out of it if you have enough patience. I don’t think it’s going to work out very quickly over time – we’ll see. It’s still a tough business that they’re in and the profit margin is negative. Lots of problem with it.
But, when a stock is down this much, beaten up this much, it’s worth sometimes to have some fun and throw a little bit of money at it. Just don’t be too delighted that it’s cheap. It could get cheaper, so only invest money that you won’t lose sleep over.
Now, last but not least, Alibaba Group Holding Ltd. (BABA).
Speaking of Chinese internet companies and tech stocks, BABA has been battered. We know why: regulators have been all over these companies and the Chinese government has been all over it. There’s been all kinds of problems and most of those have been fleshed out in terms of what we understand, but there’s lots of stuff we don’t understand and don’t know what’s going on behind the scenes.
One thing I do believe is the Chinese government and regulators are now in a position where they realize that they’ve done as much damage as they can without wrecking these companies. Not for good, but irreparably damage them to the point where it’ll take years for them to recover. They’re close to having done something like that, or at least close to it. They don’t want to get any closer because the economy of China is slipping badly due to COVID-19 lockdowns. So, now is the time for them to take their foot off the break they’ve been slamming down hard on to push back on this big tech companies.
Alibaba is the Amazon of China. I love Amazon down here and I love Alibaba beat up pretty good too. It’s down huge, 52% off its highs. I think you should buy BABA down here at $10.10. You could easily make 25% in a year, possibly if the market firms up. I think it will firm up at the tail end of this year and into the next. First couple quarters might be a bit bumpy, but I think we’ll smooth out and get past the recession fears. I think we’ll figure out all that stuff. I think corporate earnings will start to pick up again and I think global growth picks up again.
If you think the market is going to go down even lower, which it may, add to these positions I’ve recommended today, buy more as the stocks dip lower. Part of getting in now is that we will catch any bump the market sees.
There you go. That’s what we have for your BS.H. I’ll catch you guys next week.