This column was originally published on RealMoney on June 19 at 12:57 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
Wall Street is starting to report on, well, Wall Street. The first out of the gate,
, posted a 27% increase in its second-quarter profit, while net revenue was up 25%. Then there are the prospects for further stock price increases due to consolidation.
recently announced its intention to acquire
(and the guru strategies
said it was good).
Strong performance and the prospects of mergers and acquisitions could make this a good season for Wall Street stocks. Let me tell you about some brokerage/investment banking stocks liked by the guru strategies I follow.
We'll start with stalwart
. The strategy I base on the growth-oriented portion of James P. O'Shaughnessy's writings likes this company because of its market cap (a huge $93 billion), its earnings persistence (EPS has increased in each of the last five years) and its price-to-sales ratio, which should be below 1.5 (Morgan Stanley's is 1.12).
The final criterion requires that the company's relative strength be among the top 50 of the stocks screened using the previous criterion. Morgan Stanley's relative strength is 82 and passes this last criterion.
The growth-oriented Martin Zweig strategy also favors Morgan Stanley. The strategy wants to see revenue and earnings growth increase at about the same rate. Morgan Stanley's revenue growth is 21.59%, while its earnings growth, based on the average of the three-, four- and five-year historical EPS growth rates, is a similar 23.07%. Another important sales growth issue is the rate of quarterly sales growth, which should be rising. This holds true for Morgan Stanley.
In terms of earnings, the strategy wants the current EPS to be positive and to have been positive for the year-ago quarter. Both of these numbers are positive for Morgan Stanley.
Zweig's strategy also requires that the EPS growth rate for the current quarter be greater than the historical growth rate. The current quarter's growth rate is 58.94%, while the historical growth rate, as noted, is 23.07%. Like the O'Shaughnessy strategy, Zweig's strategy also looks for yearly earnings to have consistently increased over the past five years, which is true for Morgan Stanley.
is another Wall Street mainstay that the O'Shaughnessy strategy likes. I last wrote about this company on
Jan. 17, when its stock was at $212.53. Today it is in the upper $220s, 7% to 8% higher than when I highlighted it. At that time, it found favor with the O'Shaughnessy and Zweig strategies.
And the O'Shaughnessy strategy indicates that Goldman still has room to grow. Like Morgan Stanley, this company has a huge market cap; in fact, Goldman's market cap is the same as Morgan's, namely $93 billion. Its earnings per share have increased every year for the past five years and its price-to-sales ratio is a perfectly acceptable 1.25 (remember, 1.5 is the max allowed).
And its relative strength is a strong 84. Goldman Sachs is among Wall Street's top royalty, and we can see by its performance why it holds that exalted perch.
One more stock is worth mentioning:
. It too finds favor with the O'Shaughnessy strategy, though it is analyzed using O'Shaughnessy's Cornerstone Value Strategy, whereas Morgan and Goldman, which are faster-growing, were analyzed using the Cornerstone Growth Strategy. You'll see there are some different variables used between the strategies.
Though not strictly a brokerage/investment banking firm, the estimable Credit Suisse is, like Morgan and Goldman, among the world's top financial services firms. It is a global bank with a strong investment banking franchise.
Its market cap is a huge $76 billion. It has a very strong cash flow per share ($9.89 vs. the market's mean of $1.58) and has close to twice the number of shares outstanding than the market's mean. Trailing 12-month sales, another variable this strategy considers, is $43 billion, while the mean of the market's comparable sales is $17.5 billion. To pass this test, the company must have trailing 12-month sales at least 1.5 times the market's; Credit Suisse's is about 2.5 times the market's.
The final variable relates to the dividend. This strategy selects the companies from those that have passed the previous four criteria and have the highest dividend yield. Credit Suisse, with a dividend yield of 2.56%, is one of the 50 companies that satisfy this last criterion.
Wall Street is on a roll and these companies are its stars, the best and the brightest to be found in the financial world. This is a good time to load up on what the financial world's best has to offer.
At the time of publication, Reese was long Morgan Stanley, Goldman Sachs and Credit Suisse, although holdings can change at any time.
John P. Reese is founder and CEO of
, an investment research firm, and
, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book,
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback.
to send him an email.
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