University of Pennsylvania
Harvard Law School
. In 1991 Eisman joined
, where he covers financial services and specialty finance companies. Prior to that, he was a corporate lawyer with
Strook, Strook & Lavan
Industry Outlook and Style
In mid-September, Steven Eisman advised investors to take profits in three of his favorite stocks, underwriting-driven
and mutual-fund leader
-- between January and September, Merrill's shares had climbed 60%, while Lehman and Federated Investors had ascended an even more impressive 70%.
At the same time, the CIBC analyst suggested that investors use those profits to invest in
, two stocks he felt had great fundamentals, though they had plummeted 20% in the previous 18 months on fears that Rep. Richard Baker (R., La.) would succeed in his bid to impose new restrictions on the two government-sponsored enterprises. On Sept. 12, Baker attempted a last-gasp resuscitation of his bill, but it became clear from that hearing, says Eisman, "that his proposal wouldn't even get out of committee." Fannie and Freddie watchers noticed, and pushed Fannie up 20%, Freddie 12%, in the following three weeks, though the stocks have fallen back somewhat since then.
Other stocks Eisman likes in this group include
. Citi announced in early September that it intended to buy
Associates First Capital
. Eisman was instantly delighted at the deal's prospects. "I saw it would be not only accretive, as Citigroup said it would be, to the tune of $600 million, but I knew it would be more accretive than the market thought," he says. "Just bringing Associates up to Citi's efficiency is the $600 million in accretion right there. That doesn't even take into account the fact that Citigroup has a cost-of-funds advantage, that it can leverage its balance sheet more than could Associates and that the technology in Citigroup's branches is superior, so there will be more origination growth out of Associates after the deal is completed."
Eisman projects $3.20 earnings per share on the combined entity this year. As of Oct. 16, Citigroup was trading at $50.81, and Eisman reckons that in a year the stock could easily hit $70.
The CIBC analyst also recently began recommending online broker
. He offers three reasons for his first-ever buy on the stock: "It's got a very good business model, where it aims to be the low-cost provider. For the first time in a long time, revenue is growing faster than expenses, and that differential will widen even more in the next 12 months. Finally, it doesn't have to grow its advertising budget as much now that it has a brand name."
Eisman believes that, taken together, these drivers will make the company very profitable in fiscal 2001, which starts in the December quarter. He estimates earnings of 75 cents per share. "All these Internet companies are show-me companies, and I think Ameritrade will show me they can make a lot of money," he sums up.
Favorite stocks for next 12 months:
Fannie Mae and Freddie Mac
"We know the fundamentals of both companies are fine -- as always, they dominate the mortgage markets and, because of their implied government guarantee, they have a cost-of-funds advantage that translates into a competitive edge. So no one's worried about fundamentals. Now that the political risk is disappearing, we should see big multiple expansion."
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Which stock do you like best?
McVey: Lehman Brothers
Moszkowski: Merrill Lynch
Eisman: Fannie Mae