The Motley Fool: Finding dependable income with MetLife
Sun., March 27, 2016
MetLife (NYSE: MET) has seen its shares fall in value by around 15 percent over the past year. What’s going on? Well, it has been under pressure from U.S. regulators who want to label the company a “systemically important financial institution.” MetLife has argued that being considered “SiFi” would make the company far less competitive due to tougher capital regulations. Meanwhile, investors are worried about weakness in Asia potentially slowing MetLife’s overseas growth.
However, there are also strong growth opportunities for MetLife that make its stock look like an exceptional value. For example, the company plans to separate into two entities. It would essentially spin off or sell the life insurance underwriting portion of its U.S. business (this encompasses about 20 percent of its current operating income), and maintain the life insurance services, pension service businesses and more in the U.S. under the MetLife brand, along with its overseas operations. Doing so will keep the company competitive and allow it to avoid the SiFi tag from U.S. regulators.
Value-seeking investors might want to consider MetLife, which recently sported a P/E ratio in the single digits and annual free cash flow topping $14 billion. It offers a hefty dividend – recently yielding 3.4 percent – that has plenty of room to grow, and its business is likely to grow over time, too.
Ask the Fool
Q: It turns out I bought a stock near its all-time high. Should I sell? - B.A., Kankakee, Illinois
A: The price you pay for a stock – your cost basis – matters when you sell it and calculate your gain (or loss) for tax purposes. Most of the time, though, you needn’t think about it. The stock’s current price and your estimate of its true fair price are what matter much more.
Imagine that you bought shares of the One-Legged Chair Co. (ticker: OOPS) for $40 each and they’re now trading for $30. If you think the shares are worth $40 or $50 or more, hanging on makes sense. If you think they’re worth less than $30, selling might be best. Ignore the fact that you’re down $10 per share. If you’d bought the shares for $12 each, you’d be up $18 per share, but your thinking should be the same – hold if you expect more growth ahead, and sell if you expect the shares to falter.
Never hang on to a stock in which you’ve lost confidence (and dollars) just to try to recoup the loss. It’s better to move what’s left into a stock where you see a much brighter future.
Q: What’s this “closing tick” that’s mentioned on TV sometimes? - T.D., DeSoto, Texas
A: The closing tick represents the buying vs. selling activity for the last trades of the day. It’s calculated by taking the number of stocks that ended on an uptick (i.e., their last trade occurred at a price higher than the previous one) and subtracting the number that ended on a downtick. The positive or negative result reflects the overall market sentiment at the end of the trading day.
My dumbest investment
In the early days of Apple, I refused to invest in it because I’d heard that Steve Jobs treated his employees terribly. I didn’t lose money, but I did miss out on a 20- or 30-bagger. I do regret that, and have learned that it’s best to keep out all emotions when investing. - L.M., online
The Fool responds: When you’re evaluating a company as a possible investment, it’s not crazy to take into account how it treats its employees. Indeed, it’s worth assessing how well it takes care of employees, customers and shareholders, as companies doing well on all three counts are often good investments.
Consider Costco, for example, which pays its workers above-average wages and enjoys low turnover, which saves it money. It also serves customers well by not marking up prices by more than 15 percent, and it rewards shareholders via a dividend and occasional share buybacks. Its stock has averaged 12 percent growth annually over the past 25 years.
You can read employee reviews of lots of companies at Glassdoor.com. There are currently more than 7,000 reviews of Apple, for example, giving it an average of four out of five stars. Fully 82 percent of reviewers would recommend the company to a friend, and 95 percent approve of the job CEO Tim Cook is doing. (The Motley Fool owns shares of and has recommended Apple and Costco.)
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