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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