This post is the most important post on my blog ever, ever, ever. I am going to BUY Merrill Lynch! Send me to the Sanitorium!Â
Why Bank on the Banks you may ask? You may inform me that I am mad as Merrill Lynch have announced 7.9 Billion of writedowns today! I ask you to ignore this. Warren’s number one rule is don’t lose money and I think there is a good margin of safety in this stock.
Including the write offs, Merrill will earn est 3.87 if Q4 is ok. That makes Merrill on a PE of 16.98 – not a bargain you may think. However, the write offs look to be a one off event and its Mark to Marking assets, so they haven’t actually made a loss unless they are realised by selling them. So if the price goes up they make money and will probably also collect coupon payments on them as well, so extra revenue will come in.
In all, I think this is a one off hit to profits and ML could earn 9 dollars the year after – a PE of 7.3. That’s why I’m also buying selected worldwide banks who have had a price reduction, caused but not affected by subprime CDO’s. I also think today is a great time to buy as Merrill may trade down on the news this morning. Merrill is around $65. (update— $62 today) Buffet has recently bought Bank of America. I did too – at a lower price than Buffet. I have also bought Citibank.
However, Merrill really interests me as I will get it cheap today and also, they have had more time to work out subprime impact and include the write offs into the 3Q figures.
Warren – if you read this – can you put in a good word for a job please. I have always day dreamed that I might, one day, be in the position to say to you – Sir -do you want to supersize that happy meal.
PS. After I wrote this article, Merrill dropped today and I got a bit more at around $62.Â
