Berko: Good picks: HSBC, Pfizer, Zoetis
By Malcolm Berko Taking Stock February 5, 2013 6:00PM
Updated: May 10, 2013 5:43PM
Dear Mr. Berko: HSBC Holdings PLC was fined $1.92 billion recently for helping terrorist nations launder trillions of dollars, and its stock actually appreciated after the announcement. The increase in stock price certainly impressed me. So do you think 200 shares of HSBC would be a good long-term investment? I would also like to invest $10,000 in a big drug company because I think that type of company will be among the biggest beneficiaries under Obamacare. Which drug company would you recommend?
Dear TR: HSBC (HBC — $55), formerly the Hongkong and Shanghai Banking Corp., was established in 1865 to encourage the growing trade between Europe and China. Today, HSBC has a massive footprint of 7,000 branches in 85 countries. It is the world’s largest “deposit taker,” with $1.4 trillion in customer deposits, 102 million retail customers, 3.1 million corporate customers and $79 billion in revenues.
In 2011, HSBC earned $16 billion, and it’s estimated that $2.7 billion of its 2011 earnings derived from helping the South American and Mexican drug cartels, Iran, Sudan, Libya and various heads of state receive, transfer and launder money. Documentation demonstrates that between 2006 and 2011, management facilitated more than $200 trillion in transactions for terrorist nations and drug cartels, earning more than $100 billion in the process. Seeing as little of this $100 billion appeared on HSBC’s income statement, that $1.92 billion fine is basically confetti.
HSBC’s stock trades close to its high of two years ago, and in the coming few years, it may be headed to the $90s, where it was trading before the market collapsed. HSBC probably will continue to launder trillions, but management will be more circumspect. Therefore, the Street expects 2012 earnings to come in at $4.90 and 2013 earnings to come in at $6.95, with good dividend increases in both years. HSBC’s strong presence in Hong Kong and China makes it the bank of choice for multinational companies that trade with China.
HSBC’s exposure to the world’s fastest-growing economies ensures robust growth in revenues and earnings. Its geographical diversification stabilizes earnings, and its overly generous management incentive package strongly emphasizes maximum profits and shareholder gains, all of which endorses HSBC stock ownership. Because HSBC has numerous friends in Congress, management is immune to prosecution.
Whenever Congress is involved in aiding or abetting a service, the costs of that service grow exponentially. That’s the nature of Congress. So I like the drug industry, which, under ’bamacare, should book uncommon growth in revenues and earnings. I like the drug industry because Congress is unabashedly on its payroll. Therefore, there’s little limit to what this industry can charge consumers and little limit to the subsidies the government will give various drug companies. I like the drug industry because it’s nearly impervious to recession, inflation and the business cycle. It’s a no-brainer like Congress — three $10 bills for a $20 anytime.
Consider Pfizer (PFE — $26.50), a $58 billion biopharmaceutical company that should earn $2.29 this year and may increase its dividend to $1 and yield a swell 3.9 percent. PFE’s 81-product pipeline, enormous economies of scale (the largest in the drug industry), impressive balance sheet, gifted management, improving net profit margins, productive research and development department and enormous product diversification are good reasons to own it. I also like Zoetis — PFE’s $4.1 billion-revenue, obscenely profitable animal health care division, which markets a cornucopia of drugs and vaccines for pets and farm animals. And I like PFE because of its planned $4 billion Zoetis initial public offering and because afterward it will spin off the remaining 80 percent to shareholders. Zoetis, probably the biggest player in the animal care industry, may be a blockbuster for investors.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.