Thursday, December 16, 2010

Bank of Montreal 2

I have had BMO (TSX-BMO) since 1983 that is for approximately 27 years. I have only tracked my stock in Quicken from 1987 (23 years) and since then I have made a total return of 16.3% per year on this stock. Over the past 10 years, I have made a respectable total return of 9.7% on this stock.

Any long term total return per year of over 8% is good. The last few years have not been kind to stocks or the banks and to come out of the last 10 year period with a 9.7% total per year return is very good. I know that people talk about consistently making 20% per year return in the market, but this is not possible. There was years when this stock did much better than the last 10 years for me to get a total return of 16.3% per year over 23 years. This is the beauty of long term investing. I have had good capital gains and good dividends over the years from this stock.

When I look at insider trading, there is some $45M of insider selling with a net insider selling of $44.1M. So there is some insider buying, just not much. Although, when has there not been a lot of insider selling at banks, or any company were the insiders have lots more stock options that shares. It is all rather discouraging, but it tells us nothing.

The 5 year median low P/E Ratio is 10.5 and the 5 year median high P/E Ratio is 16.9. So the current P/E ratio that I get on earning estimates at 11.5 is towards the low end. Sites that quote P/E Ratios based on last 12 months earnings get a higher P/E of 13. This is sort of average for this stock. I get a current Graham Price of $64.34. The current stock price of $62.07 is about 4% below the Graham Price and this is good in itself. I looked at the median difference between Graham Price and stock price over the last 10 years. This ranges from a high of 20% to a low of -7%. So, the current difference of -4% is towards the low end.

Looking at the Price/Book Value Ratio, I get a 10 year average of 1.97 and the current P/B Ratio is 1.83. The current is 93% of the 10 year average. So this shows a good current, but not great current stock price. (A great stock price is when the P/B Ratio is 80% of the 10 year average.) The only test that does not show a very reasonable current stock price is the dividend yield. The 5 year average is 5% dividend yield and the current at 4.5% is lower than this.

However, the 10 year low dividend yield is just 3.5%, so it is better than this. It is even better than the 5 year low of 4.2%. So the dividend yield shows a not unreasonable stock price also. One thing you should aim for is to ensure you do not over pay for a stock. By looking test highs, you can see if a stock is overpriced. It would be nice to buy at a relative low stock price, but this is usually not possible. The best you can often do is pay a reasonable price for a stock.

When I look at analysts’ recommendations, I find they are all over the place as I see recommendations of Strong Buy, Buy, Hold, Underperform and Sell. Most of the recommendations are a Hold. There is more Buy than Sell recommendations. The consensus recommendation would be a Hold. (See my site for information on analyst ratings.) Analysts think that the 12 months stock price would be around $66.

Mostly analysts seem to think that Royal Bank and Bank of Nova Scotia would be better banks to purchase at this time. Some like the TD bank better than BMO. Some even mention CIBC as a present good purchase. The analysts that like this stock point to the fact that it has one of the highest bank dividend yields at 4.5%. They also think that BMO has done a good job solving the banks problems and that it has long term growth potential.

I will be holding on to what I have.

BMO is a bank. They offer personal and corporate banking and wealth management services in Canada and US, which includes looking after banking, financing, investing, credit card and insurance needs. They offer mortgages and mutual funds and they offer full service and on-line brokerage services. They are international bank having banking in Canada and US. They have clients, corporate, institutional and governmental, in UK, Europe, Asia and South America. Its web site is here BMO. See my spreadsheet at bmo.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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