Moody's Corp. (MCO)

(A Top Pick May 28/18 Down 1%) There is only two rating agencies in the US that matter. Warren Buffet is a long term holder. Not cheap, but the fundamental metrics are great. He likes the revenue growth and great returns on invested capital.

He's watching it. Everybody needs their services as a ratings agency. Moodys Analytics has good upside, because banks are recommending this service. Moodys and S&P are similar companies and both on his watch list. A fine company.

He's not a fan of this. This has good price momentum, though. It's in a rising channel, and you want to buy below the midpoint.

A bond-rating agency. Ranks near the top of his list. Not a cheap stock, but you pay for quality. (Analysts' price target: $180.00)

Chart shows this was moving sideways from early 2015 and then broke out in early 2017. It looks good. It’s probably due for some correction, but generally speaking the breakout is very bullish for the stock. If it pulled back at all, he would probably be all over it.

(A Top Pick Jan 4/17, Up 59%) They are good at putting language in their ratings documents. It is a duopoly. See Top Picks today.

Credit ratings. It is a duopoly, so they have pricing power. In the next three years there is a tremendous amount of debt coming due. Corporate bonds are the gift that just keeps giving to them as the bonds come due and have to be re-issued and the company has to be rated. (Analysts’ target: $150.00).

This is part of a triumvirate in the bond/insurance business, along with S&P and Fitch. These 3 companies absolutely dominate the bond rating business. If you are going to issue bonds, you have to be rated, and you have to go to this company and get a rating, a guaranteed source of income. They are under a bit of a cloud because they are being investigated on their ratings of credit secured obligations prior to 2008, and that is probably baked into the stock. Dividend yield of 1.57%. (Analysts’ price target is $108.40.)

(A Top Pick Nov 23/15. Down 4.75%.) When he recommended this, the market was fabulous. January and February were months of high yield, and nobody wanted to issue any bonds anymore. The company lowered its guidance and the stock plummeted. Then they started doing better than their guidance and last quarter they raised guidance. Unfortunately, they also got a subpoena from the Department of Justice for possible misdoings during the 2008-2009 financial crisis. Fundamentally, the business is doing fabulous. This is one that he could hold forever.

This has an excellent franchise with the S&P, and he thinks there is a long-term secular growth. They announced in December that their dividend growth is going to go from the high teens down to about 9%, which was well below the hurdle for inclusion in his portfolio.

This fell 15%-20% from its all-time high in September. By 2019, $3 trillion of Moody’s rated bonds are going to come due. That is a lot of bonds that have to be refinanced and re-rated. There are a lot of bonds that are going to be issued over the next year or so. A high margin and high return on equity business.

(A Top Pick Oct 20/14. Up 7.45%.) This industry is highly consolidated and this company controls 40% of the global ratings. They do 45% EBITDA margins. Putting that into context, the other 200 largest companies in the US have an average EBITDA margin of about 25%. This is a business that can increase prices every year. In the last couple of quarters, they announced an additional $1 billion buyback and increased the dividend by about 20%.

Credit/debt rating agency. Control close to 40% of the market. You can’t issue debt without a rating. A lot of their revenues are recurring in nature. They buy back stock as well.