Question:
I have a two-part question regarding financials: What is your opinion on Lincoln National and MetLife? What financial stocks would you recommend in addition to the stocks within your Recommended Portfolio?
Answer:
Both Lincoln National Corp. (NYSE: LNC) and MetLife, Inc. (NYSE: MET) are in the insurance industry, and very similar. Lincoln has multiple lines of insurance, including life insurance, and retirement businesses. Lincoln has experienced more problems with its securities portfolio and has had a difficult time with the disintermediation of funds from their annuity products. Interest rates have been extremely low, and the firm is seeing people move from their annuities to chase higher returns elsewhere.
MetLife has made some solid business decisions, including selling their deposit business to GE, which would get the insurer from under the banking regulations. However, the sale hasn’t been completed yet. The company is expected to grow, as it recently bought American International’s life insurance business. While this purchase hasn’t paid off yet, it is expected to in a few years.
We do not own either company. MetLife appears to be on the right track, but they likely still have some write-offs related to European debt. We own AFLAC (NYSE: AFL), because it has higher margin business and strong exposure in Japan where it sells its cancer policies. AFLAC has also written off or sold almost all of its European exposure. If the bond market were to go sour again, AFLAC would be the safer bet, as far as insurers go.
As for other financial stocks, we like IntercontinentalExchange Inc. (NYSE: ICE), an operator of global futures exchanges and clearing houses for derivatives. We like the stock for the global growth. We own The Travelers Companies (NYSE TRV), a commercial and personal property and casualty insurance product provider. It offers a higher return on equity. We also like T. Rowe Price (NASDAQ:TROW) a money manager.
Question
Is Apple Inc. (NASDAQ: AAPL) too expensive? Do you think they should split their stock?
Answer:
No, we do not find Apple too expensive. Now worth near $500 billion, the company would have to be perfect to gain the appreciation they have experienced in the last few years. Right now, Apple is the center of everyone’s attention, and thus, everyone’s target. Investors are beginning to question Apple’s valuation, which could be a negative, but it is hard to quantify considering their current position. The company has nearly $100 billion in cash. If they were to buy back shares, certainly, earnings per share would go up. The company is selling around 18.8 times recent earnings, but we give it only three years at that rate as earnings growth is likely to slow.
If the stock were to split it would be cheaper, but to those who own the stock, it does not matter if they own two shares at $500 each or 20 shares at $50 each. If they were to split the stock, it would open shares to smaller retail investors, but it would not change the market value. Some argue the big winners in stock splits are the attorneys who do the prep work.
The company has about 60%-70% share in the smart phone industry. We still feel it is a good stock. We are still buying it for clients who do not own it, but it should not constitute more than 5% of their portfolio.