Posts Tagged China

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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