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I recently came across this list on Forbes on the largest 25 tax payers. Forbes does a bit of analysis on each of them. It is probably worth your time to jump over, but I thought I would give the highlights here:

 

Rank of tax expense

Company

Symbol

Effective Tax Rate
1 ExxonMobil XOM 39%
2 Chevron Corporation CVX 43%
3 Apple Inc. AAPL 25%
4 Wells Fargo & Co. WFC 31.2%
5 JP Morgan Chase & Co. JPM 26%
6 Wal-Mart Stores WMT 31%
7 ConocoPhillips COP 51.5%
8 Berkshire Hathaway Inc. BRK 28%
9 IBM IBM 24%
10 Microsoft Corporation MSFT 22.8%
11 Philip Morris International Inc. PM 29.5%
12 Goldman Sachs GS 33%
14 Comcast Corporation CMCS 32%
14 The Procter & Gamble Co. PG 23.5%
15 Johnson & Johnson JNJ 23.7%
16 Intel Corporation INTC 23.6%
17 Occidental Petroleum Corp. OXY 42%
18 UnitedHealth Group UHG 35.9%
19 The Walt Disney Company DIS 32.7%
20 AT&T T 27.8%
21 Oracle ORCL 21.4%
22 The Coca-Cola Company KO 23.1%
23 The Home Depot Inc. HD 37.2%
24 McDonald’s MCD 32.4%
25 Google GOOG 19.4%

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I don’t try to predict why a stock is going up based on market conditions. That strategy is simply fraught with danger that I try to avoid.

I frequently get emails, comments on my site, or Twitter questions regarding my opinion on a particular news story. The questioner is almost always asking for my opinion on the news’ affect on a certain stock.

I strongly urge investors to not worry about such details. I realize that Jim Cramer of Mad Money will often discuss the reaction of a stock to a news item. As a case in point, Mr. Cramer recently tweeted on news of gasoline prices potentially dropping and its influence on the retail segment. Jim is incredibly smart and immensely popular. I enjoy watching his television shows. However, I think that using this information to control your investment is unwise for the individual investor.

As I pointed out in an earlier article, the influence of the news on a particular stock is typically extremely short lived. There was a recent study by an analyst  firm that looked at the help wanted ads for Microsoft [stckqut]MSFT[/stckqut] in order to get an insight into Microsoft’s focus for development. I laughed when I saw that story. The recruitment process by a company has nothing to do with the immediate quarterly success of the company. The long-term success of the company obviously depends on its future investments (which I wrote about here) but to try to predict the success of the company based on who they are going to hire in the short-term is giving far too much omniscience to the analysts doing the study.

I honestly do not think that it is necessary to make such deep analysis to be successful. As I teach in my book, The Confident Investor, most of the analysis can be reduced to a 10-year analysis on 4 different metrics combined with a current analysis of two more metrics. This gives you the capability of finding truly exceptional companies. You should grow your investment in those Good Companies using technical trading tools that control your trades.

It is entertaining and educational to listen to Jim Cramer explain how the various macro factors affect a company or an industry. I am sure that he is often correct. However, I don’t suggest that the individual investor repeats this effort.

You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

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Much of what you read and hear from “experts” is that you should “Buy and Hold” stocks and have a fixed investment schedule. They recommend that you find a quality company (or mutual fund), buy fixed amounts of stock out of your paycheck every month, and hold that stock for quite some time (maybe even decades). As I pointed out in the example from my book, The Confident Investor, it is possible to improve on this expert advice.

The “Buy and Hold” and “invest regularly” philosophy seems easy. It also shows commitment to your favorite stocks, but it’s not the philosophy that the “experts” use when they buy a stock!

EXAMPLE: Warren Buffet is considered to be one of the smartest buyers of companies ever. In a two-week span at the end of September 2008, Mr. Buffet bought stock in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS). He did not buy just a little bit; he invested billions of dollars in each company in return for a large percentage of those companies. If GE and GS were such great investments, why did not he just put a regular installment system in place to buy the stock? Of course, they made him a special deal for the investment, but that only proves that when the price is right, you need to act.

EXAMPLE: Microsoft Corporation (NASDAQ:MSFT) acquired all of the stock of Skype in 2011. This acquisition did not happen slowly by Microsoft investing in the Skype stock every month until they owned it all. Rather, Microsoft went to Skype investors and offered to pay them more than the current market price of the company. They did this because they saw value in total ownership of the company immediately. Microsoft executives evidently felt that Microsoft would be more profitable by buying all of Skype at one time.

The pages of the Wall Street Journal and Investors Business Daily have stories almost every day of individuals and corporations buying substantial portions of a company. These are some of the brightest investors on the planet. They show by their actions that the prudent way to purchase stock is to find a company that is priced right and invest their cash in that company. So why should you listen to experts say to “buy and hold” on a regular basis, when many experienced investors make substantial investments?

This site and my book are dedicated to trying to give you a better methodology. If you really want to understand how to significantly increase your wealth, you should purchase my book, The Confident Investor. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.

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CNET recently put out an article discussing the most profitable US corporations. The article shows that even with Apple’s disappointing quarter that caused a major drop in stock price, Apple is still had more income than anyone else. The issue is that the analysts thought that the results were going to be even better, so the analysts were disappointed. When you disappoint analysts, they punish you by saying bad things. I am borrowing the great CNET chart below.

 

Apples disappointing quarter in context chart

 

To this analysis, I would like show how cheap these stocks really are. While I try to not compare the P/E ratio of non-competitors, I think it is valid for this one exercise.

If we look at the P/E and EPS of these companies, it is quite telling how cheap Apple really is among this peer group.

 

Company

Symbol

P/E

EPS

Apple Inc.

AAPL

9.78

44.10

Exxon Mobil Corporation

XOM

9.17

9.69

Microsoft Corporation

MSFT

15.39

1.82

Pfizer Inc.

PFE

22.36

1.26

International Business Machines Corp.

IBM

14.57

14.41

JPMorgan Chase & Co.

JPM

9.64

5.20

Wells Fargo & Co

WFC

10.85

3.36

The Procter & Gamble Company

PG

19.76

3.90

General Electric Company

GE

17.08

1.39

 

It might not be obvious from looking at the above table of values. Looking at P/E as a chart shows that Apple is one of the cheapest stocks by comparing its price to the earnings of the company.

Apple's PE compared to the most profitable companies

 

It really becomes obvious then by looking at the earnings per share in chart format!

Apple's EPS compared to the most profitable companies

 

So if you think that Apple’s days are done, you may want to think again! In fact, the biggest complaint that you can say about Apple is it seems that they are not getting enough shareholder value! 

If you think that IBM is fairly priced for its earnings then it would be realistic that Apple could increase its share price by 50% if you focus on P/E! By looking at Microsoft, you could say that the price could go up 60%! This means that it is likely that Apple has more upside potential than downside risk.

My disclaimer on this site consistently says that I ‘might’ be long any stock I talk about. In this case, I am long on Apple as I write this article. However, as I consistently point out in my book, The Confident Investor, I didn’t pay for those shares! My current Apple holdings are all free.  If you want to know how to get free stock in great companies, I suggest that you read my book. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

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If you are watching the news the last few weeks, you will have noticed that the current management team of Hewlett-Packard [stckqut]HPQ[/stckqut] is practically accusing the Autonomy management of lying. H-P management is saying that Autonomy was not worth what it paid for the company but the fault lies with Autonomy and not with H-P.

In my forthcoming book (hopefully on sale by Christmas), “The Confident Investor” I explain that investors should sit back and watch when a company makes a large acquisition.  Never own a company that sells more that 10% of itself (e.g. spins off a division) or buys another company that is larger than 10% of the original company (e.g. they acquire a company as a new division or subsidiary). These extraordinary events can radically change a company and divert its attention. While many such events will result in a stronger company, you cannot be confident in the short term that your investment is safe. It is usually safer to invest your money and time elsewhere while the dust settles.

The 10% rule of thumb is simply that, a rule of thumb. Sometimes you should be wary of a company making a smaller acquisition that is significantly above market value. Too often these deals include far too much goodwill and then that goodwill turns out to be bad.  In a recent Wall Street Journal article, “‘Tis No Season for Goodwill to Investors” it was pointed out that H-P is writing off more than $5B in goodwill for the Autonomy acquisition. They are not alone though since Microsoft [stckqut]MSFT[/stckqut] just did a $6.2B write-off and Bank of America [stckqut]BAC[/stckqut] a whopping $15.6B.

Sometimes, a major acquisition turns out well but you should always be wary. If one of your major holdings makes a significant acquisition there are a few quick steps to take. First, find out if the company is being praised by the business media. Typically, if the media is positive towards the acquisition then it isn’t terrible.  Second, do some quick analysis of the acquired company – would you invest in the company at the acquired price? If you are not sure how to establish a fair price then you really should read my forthcoming book as I spend time explaining how to value a company.

Not all acquisitions are bad but you should be wary of all acquisitions.