Archive for category Buying

China’s Tiger Value Window

China’s economy keeps showing its big, ugly cracks. Real growth is nowhere near where it was a decade ago, and even though the Chinese have been keen on initiatives for internal growth, the hyper-infated market rife with government meddling, corruption, and mismanagement are causing the Shanghai and Shenzhen exchanges to melt down, albeit with some government imposed fun-and-games on the way down.

That in turn is causing stock markets around the world, fat with their own hyperinflation, to rattle with some profit-taking on the chance that the Chinese system causes a domino effect.   This, then, brings the prices of several stocks that were hovering outside of value range into line for purchase.

Potash Corp of Saskatchewan Inc (POT) is a $32.00 stock selling in the $16s at the moment. With approx. a 68 year proven reserve of the minerals used in fertilizers, and one of the three legs of the potash oligopoly, this is one of those fundamental “grimy” companies that Benjamin Graham would have loved.  With lower costs of production, it can ride out much of the swings in the commodity. Excellent management, reasonable debt, and a 9.2% dividend that is sustainable all make this a great opportunity of the moment. STRONG BUY.

Other old favorites that we’ve dumped after they’ve had big run-ups are back in play range, with forward news that looks like they’re good for another run upward. Read the reports at Morningstar, which aren’t bought and paid for by the Wall Street firms hustling this and that on the hour or minute. If China continues to rattle markets, all might have some minimal lemming shift out of them, making them attractive.  We’re buying in smaller increments and picking up more at a lower price if we can get them using the laddering techniques we’ve described here at the VG. Here’s our thinking on them:

GAP (GPS) is an older holding that we sold off in one of the clothing retailer’s better headwinds, but since then it has not only solidified its empire, but it has began to scale back its retail operations to the more profitable ones in favor of additional capacity on its web/virtual shopping side. The focus looks to make for greater profitability long-term. (BUY)

CSX Corp (CSX) is one of the nation’s premiere railroad companies, and it’s done something which it wasn’t expected to do when we sold it: Beat the shrinking coal market. Coal has been the backbone of most rail empires, and between the move to solar and warmer weather, both have sent coal sales through the floor.  CSX nimbly has picked up more car and container business, and figured out how to keep its labor costs lower. The stock is at a discount and just around the 3% dividend window that we use along with a 17% discount-to-fair-market. (BUY)

Amgen (AMGN) has been in and out of our portfolios for a while. When it takes one of its legendary runs, we try to be on the ride. When it looks like something may break the run, we depart, and wait for the next trip. Today is the day to get on board. Amgen under $155.00 with a fair market value of $194.00 and a dividend currently around 2.6% is a great slow growth machine which, at the moment, has a pipeline full of opportunities that look like it will prosper for the next few years. This stock will move around with the burps in the market, so don’t buy a full position at once if you can avoid it. (BUY/LADDER).

I’m a bit less enthusiastic about Union Pacific (UNP), but it’s a well run company and it has a massive footprint that is impossible to reproduce. Their exposure to coal, even with their excellent handling of it to date, still remains a question mark.

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Ringing Up a few Buys

The market in the United States is very oversold. The market in Europe is being hammered, and Japan has some sectors that look interesting.

FTE – We would agree that the analysts over-reaction to Illiad’s entry in the French market for phones has been a bit extreme. The economy is winging France Telecom (FT), and competition is being felt, but the company has a giant footprint in Europe and Africa which doesn’t even blink at Illiad’s “threat” to their wireless service in the mother country.  That, and the French government still has a stake in FT.  We’ve been net buyers on its way down in the curve, a little here and there, to lock in good returns.  For now the dividend, with a projected yield of 14.89% appears to be in good shape. Anything under $14.50 we like just fine.   BUY.

DCM – We bought some NTT DoCoMo back when the Fukishima plant melted down and Japanese stocks were affected. We like the Godzilla of Japanese phone companies that holds 45% market share. They’ve been cost cutting and turning towards volume sales of smart phones as a way to create more revenue where older phones didn’t have it: In the data plans.  With a projected yield on the dividend of about 4.3%, we like it enough to buy a bit of it and keep it around to offset the American stocks being sold. BUY.

If there is a correction, we’ll be looking at buying GM in the middle of it. It’s great stock, debt reduced, lean and mean, with the government exiting its share,  and it’s already selling for about half of its fair market value.  We think there might be some further discount with the correction.  BUY PENDING.

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Buy – EXC

Exelon is trading at a 52 week low. This is a phenomenal utility, with a solid 6.57% dividend yield. Exelon maintains is the largest nuclear plant operator in the United States. It acquired many of its operations from other operators who were unable to run them safely and well. It bought most at pennies on the dollar and actually got the dismantling costs included in the purchase price for several units, which gives it a very big edge on cost containment. Its ability to produce low-cost electricity with minimal greenhouse gas emissions.  The company should produce substantial, sustainable, and growing shareholder value for many years, regardless of what path power prices take. It is the only utility that gets Morningstar’s wide economic moat rating.  This is the basement where you get in. BUY/ACQUIRE

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Buy – CSX

CSX – This railroad is a classic value stock. Trading in the high 20’s today we’ve been picking it up when it ranges between 19 and 21. This railroad got its act together during the rail renaissance. They haven’t returned to 2004 load levels yet, but they are well on their way back, even with a few road bumps along the way. We expect the economy to improve gradually over the next 3-4 years and with it, loads will go up on the railroad.  It pays a 2.5% dividend on a big stable company that has assets that are virtually impossible to replace or compete with in their market. CSX moves a lot of coal, which just took a hammering this morning on the idea that Mr. Obama will be involved in more green energy going forward, but ignores the huge overseas buys of coal that will fire up once China goes back into full gear and coal demand world-wide picks up.  That, and CSX is not as tied to coal as they were decades ago. Morningstar has it as a 5-Star at this price. BUY

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BHP May Slow Iron Expansion Plans on Slowing Growth in China

This presents a longer buy window. Watch what debt BHP has to take on to finance projects in the faceofalowerincome from sales, though.

http://www.ft.com/intl/cms/s/0/5e91532e-dc5b-11e1-aba3-00144feab49a.html#axzz22MtX3dor

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TheValueGenius Buy: General Motors (GM)

GENERAL MTRS CO COM (GM)

Some GM bonds became GM common stock when the company emerged out of bankruptcy. We became “involuntary shareholders” of the new GM when some of the GMAC bonds were converted from debt to equity.  There is a long bumpy test track to GM’s long-term success. American restructuring has made the company hugely profitable in the U.S.  Sales of light trucks are going screamingly well. They build great products.  Even the oft-maligned “Volt” if you see one up close, is an exceptional vehicle.

Their European divisions are still a boat anchor. Europe’s financial woes, combined with government problems in idling or closing plants make Opel and Vauxhall more net liabilities over the next few years until Europe can right its economy.

The restructuring has given them a much easier way of funding $32B in pension obligations, though and they’ve moved more than $6.4B into their voluntary funding.  Share appreciation will help reduce their debt load with VEBA, the stakeholders with the pensions, as they sell off their shares to pay the costs of retirees.

The government stake in GM needs to be bought back from the Treasury. They invested a 7% stake in Peugeot as part of a cost-restructuring of parts supply for their European divisions, which we understand. Confidence will be boosted when they retire the Treasury’s huge stake in GM.  That’s a political football waiting for after the election, to avoid politicizing GM and dragging the damaging “Government Motors” mantra in to cover Mitt Romney’s “let them die” remarks.  Even though you would think it would be good for Mr. Obama to say that GM was repaying the Treasury, anything negative, as we’ve seen outweighs its intellectual positives with the minions of Rush.

The long-term prospects, though, for GM, which is doing very well at least with American consumers, look bright in a few years. Warren Buffet’s investment of 10M shares for Berkshire Hathaway (BRK.B) is a good sign, as its’ not cheerleading; it’s a sound analysis of GM’s bottom line projected forward. GM Financial will slowly rebuild their mighty vehicle financing division.  Right now shares are trading at their historic (albeit short history) lows.    We’re not taking a huge position, but we will bring it up a bit.  BUY.

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Buy – Getty Realty Corp (GTY)

GETTY RLTY CORP (GTY)

Value opportunity. Getty Realty Corp. is the largest gas station-based real estate investment trust (REIT) in the United States They also lease petroleum distribution terminals. The Company’s properties are located in 21 states across the United States with concentrations in the Northeast and the Mid-Atlantic regions. They operate under Getty, BP, Exxon, Mobil, Shell, Chevron, Valero, Fina and Aloha.

The REIT owns the Getty trade name in connection with its real estate and the petroleum marketing business in the United States.

As of December 31, 2011, GTY owned 996 properties and leased 153 properties. In January 2011, it acquired fee or leasehold title to 59 Mobil-branded gasoline stations in a sale/leaseback and loan transaction with CPD NY Energy Corp.

It has also had to reposition its properties leased by Getty Oil, which declared bankruptcy and took 788 stores into that proceeding.

The large drop in income caused a temporary suspension of the dividend, which had been a cushy .48/share last June.   The properties have been repossessed and are now being released. There is interesting potential for dividend growth in this REIT stock as it returns to full health. The short-term yield is 2.63% but it has the potential to return to its 5.8% dividend once the inventory is re-leased.  This is a speculative investment in that one assumes that GTY will be able to re-lease all of the stations that were tied up the bankruptcy proceeding. MODEST BUY/ACCRUE.

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Buy on EXPEDITORS INTERNATIONAL OF WASHINGTON (EXPD)

EXPEDITORS INTERNATIONAL OF WASHINGTON (EXPD) – This is one of the few forward growth stock plays that we’re issuing, largely because of the unique parameters of EXPD’s high cash flow, low debt business model.

Expeditors International of Washington is a non-asset-based freight-forwarding and third-party logistics, or 3PL, provider.  It is the best and nearly the biggest in its business.  It has been profitable, and is a long-run-focused firm sitting on a mountain of cash.  It owes no debt, and produces strong cash flows of 17+% while deploying nearly no assets. Expeditors’ has had a record of steady growth, high margins, and high returns on invested capital.

We see it as a long term holding. With prices affected by sluggish demand for shipping, it is still trading near the bottom of its range.  Morningstar gives it a fair market value of $61.00, so current price is about a 38% discount to FMV.  The 1.7% dividend is nothing to write home about comparatively to our other holdings, but it does keep inflation out of the picture and allows time for a growth upswing in transportation which should start within a few months after the November elections here, and some improvements in Asia’s economy that are trending toward increased shipping.

It’s trading flat to down slightly (4% from our original position), but we’re adding shares as opportunities around $38.00 or less present themselves.  BUY/ACQUIRE.

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General Directions for Investing Research and Buy Ideas 7.16.2012

The economic plates are shifting. While we sit and argue about abortion and immigrants, our GDP has remained flat for a decade. China’s has soared to now rival the United States.  That is not to say that America is finished. If progressive politics can replace the internationalist gridlock that corporate America has on the Congress, we might see new opportunities ahead. The next Google. The next Space X.   Solar power.  The modern power grid.  Wind and water energy.  Newer more efficient cars and trains.  All of this has been held up in a political climate where narrow social agendae are grinding the wheels of government to a halt.  Where to invest in this climate?

A portfolio should be holding more American Depository Receipt (Foreign) stocks (ADR)s. Even with taxes and fees, there are opportunities and yields on dividends that position portfolios well to

Right now there are good value opportunities in Europe, Latin America, Australia, and Asia.

Out of Australia comes Alumina LTD ADRs (AWC) – A linked aluminum supplier to giant Alcoa (AA), which we also hold and like, Alumina Limited’s sole interest is a 40% stake in Alcoa World Alumina and Chemicals, or AWAC, the world’s largest alumina producer. Alcoa Inc. owns the 60% balance.  The stock, trading at lows in the high 2’s right now, is worth a fair market $10/share, and puts out an 8.6% dividend.  The pricing is in response to the processed metal’s falling price, but reports continue to show that aluminum forward growth generally looks good as new technologies need more lighter materials with which they can be built.  Alcoa posted a loss for the quarter, but still beat analyst numbers.  Remembering that we buy big companies on bad news this is an area where there is some profit to be made by adding stock to the dog pound with good yields, good management, and sound balance sheets that survive turbulent times.

Europe’s bad news continues to put pressure on even the best companies.  Utilities and telephone companies and other large, necessary, stabile entities with good cash flow and reasonable debt tend to be safe havens during turbulent times. They pay good dividends. They have predictable revenue streams in that regulation by governments usually provides operating parameters.

We’ve seen a nice turnaround in British Telecom (BT) over the last few years, and locked in double-digit yield on our dividend based upon the purchase price.  We’ve bought France Telecom (FTE) and continue to acquire it here and there as its 12.1 to 13.5% dividend is appealing, and there isn’t any particularly compelling bad news in the company’s news itself to suggest any danger to the dividend at this time. Even if they cut it in half, though, 6.5% would still be a far better return than we can find in bonds or (stop laughing) at the banks.

We’re looking at a smaller presence in Telefonica SA (TEF) for much the same reason. The Spanish telephone company hold telephone companies in Latin America and Europe.Telefonica has more debt than the others, and will be divesting some of its non-core assets over the coming months, but we expect that to help, not hurt the bottom line on debt retirement.

Both are posting yields in the 11-13% range, which far outstrips a bond, with far better liquidity and the likelihood that both operators will do reasonably well enough as the economies of Europe recover over the next 5-6 years to at least warrant the pickup of our minimum 17% discount to the fair market value of the stock in appreciation, possibly better, plus the dividend. Dividends can be cut, but at the moment it still looks secure.

The other avenue to look down are in any company which own raw materials and precious metals or minerals. Most are highly undervalued right now, but as the recovery rolls out, they will all do well. BHP Billiton (BHP), Alcoa (AA), and even more obscure oil or resources trusts.

Cross Timbers Royalty Trust (CRT), pays a monthly dividend in the 8.8% range.  It has virtually no liabilities. Other than the oil drying up in their various lease lands, the risks are relatively borne by the company doing the drilling and the pumping. Their stocks cycle in price as optimism and pessimism about oil prices surge like the tides. CRT is a domestic trust that pulls in money from lands it leases to others. A downward move in the long term would be based on decaying proven reserves. If you invest, make sure you read their reports to see what their forward projections on proven reserves are.  If they have less than 15 years, the stock should already be in price decay.  Great Northern Iron Ore (GNI) which we bought as a temporary refuge last year, has started its decay as the trust winds down. The interest rates are spectacular to the price, but its a comet not worth chasing as the principle will be impacted.

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The Value Genius – Buy Ideas – 07/06/12

BUY:

Alcoa (AA) – We’ve bought Alcoa in its slide down, and we’re continuing to buy as opportunities present themselves. It hit its 52 week low and at 8.39 we find it very attractive. Aerospace use is picking up, and the aluminum giant has either temporarily or permanently shuttered locations to bring production into line. With even modest improvement in usage by the auto industry, already up, which is gearing up for lighter hybrids. China and ultimately Africa represent growth opportunities, along with the retool of North America, as that slowly unfolds. Alcoa’s fortunes will advance. Analysts are being particularly hard on Alcoa and we think it a bit unwarranted.

France Telecom (FTE) – Sure it hasn’t grown much in the last few years, but with a dividend yield of 13.1% and pretty decent cash flow, we’re not crying in our beer while we wait for them to work through the sluggish European economy. Huge cash flow. We pick up a bit here and there on the dips.

American Capital (ACAS) – I originally bought into ACAS to ride the tide of the capital companies buying and developing mid-path start-ups into profit generators. It paid a tidy cash dividend. Along came 2008 and 2009 and ACAS squeaked through. Dividend suspended.  I bought it down into the floor of  3.21 when it had been in the high 40’s.  They’ve weathered the storm. Their debt is 20% of equity, fairly low, and they’ve turned out a 53% annualized return for the quarter alone.  I hope to see them restore the dividend one day soon. At its current price, with the numbers that it generates we think its $9.60 price point is a pretty good bargain for the portfolio of companies which they hold.  I cautiously acquire a bit more, and advise caution, because this business, even with a much stronger balance sheet than it had in 2009, is still at greater risk of loss or delay in returning to profitability in any major correction.  Between 5 and $9, though, a good chunk of that risk is factored in.

Berkshire Hathaway (BRK.B) – Right now it is out of buy territory just slightly. If it drops into the low to mid seventies, BUY.  A highly diversified company which follows a lot of strict value rules and has returned stellarly for all involved. The concerns that its leadership, Warren Buffet and Charlie Munger, are old is unwarranted. They’ve been grooming the team that runs the place for decades.

 

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